First Mortgage

AAA

DEFINITION of 'First Mortgage'

A mortgage in a first lien position on the property that secures the mortgage. A first mortgage has priority over all other liens or claims on a property in the event of default.

INVESTOPEDIA EXPLAINS 'First Mortgage'

If the loan to value (LTV) ratio of a first mortgage is greater than 80%, lenders generally require private mortgage insurance (PMI). In such a case, it can sometimes be economical for a borrower to limit the size of the first mortgage to an 80% LTV and use secondary financing to borrow the remaining amount needed.

The economics of paying PMI versus using a second loan largely depends on the rate at which a borrower expects the value of his or her home to increase. PMI can be eliminated when the LTV of the first mortgage reaches 78%; however, a second lien, which typically carries a higher interest rate than a first mortgage, must be paid-off, most likely through a refinancing of the first mortgage for an amount equal to the remaining balance of the both the first and second mortgages.

RELATED TERMS
  1. Private Mortgage Insurance - PMI

    A policy provided by private mortgage insurers to protect lenders ...
  2. Mortgage

    A debt instrument, secured by the collateral of specified real ...
  3. Closed-End Mortgage

    A restrictive type of mortgage that cannot be prepaid, renegotiated ...
  4. Back-to-Back Commitment

    A commitment to make a second take-out loan that piggybacks another ...
  5. Lien

    The legal right of a creditor to sell the collateral property ...
  6. Loan-To-Value Ratio - LTV Ratio

    A lending risk assessment ratio that financial institutions and ...
RELATED FAQS
  1. Did the repeal of the Glass-Steagall Act contribute to the 2008 financial crisis?

    The repeal of the Glass-Steagall Act was a minor contributor to the financial crisis, if it contributed to the crisis at ... Read Full Answer >>
  2. What is the difference between secured and unsecured debt?

    The difference between secured and unsecured debt is the presence or absence of collateral backing. Secured Debt For a debt ... Read Full Answer >>
  3. What's the difference between a collateralized mortgage obligation (CMO) and a mortgage-backed ...

    A mortgage-backed security, or MBS, and a collateralized mortgage obligation, or CMO, are different types of asset-backed ... Read Full Answer >>
  4. Do creditors have the same rights in all 50 US states?

    While the rights of creditors - individuals or businesses who are owed a debt - are federally protected, some states do offer ... Read Full Answer >>
  5. What is a Z bond in a collateralized mortgage obligation (CMO)?

    A Z-bond is the lowest tranche in a collateralized mortgage obligation (CMO). Z-bonds, also called accrual or accretion bonds, ... Read Full Answer >>
  6. Were collateralized mortgage obligations (CMOs) responsible for the financial crisis ...

    Many believe that collateralized mortgage obligations (CMOs) played a critical role in the 2008 financial crisis. Subprime ... Read Full Answer >>
Related Articles
  1. Credit & Loans

    4 Steps To Attaining A Mortgage

    It starts with knowing your choices as well as your price range. We show you how to get there.
  2. Personal Finance

    Understanding Your Mortgage

    We walk through the steps needed to secure the best loan to finance the purchase of your home.
  3. Options & Futures

    Make A Risk-Based Mortgage Decision

    Find out how to choose which mortgage style is right for you.
  4. Home & Auto

    6 Tips To Get Approved For A Mortgage

    You can change your bank's answer to a loan request from 'No' to 'Yes'. Find out how.
  5. Credit & Loans

    Understanding The Mortgage Payment Structure

    We explain the calculation and payment process as well as the amortization schedule of home loans.
  6. Credit & Loans

    Save? (Or Prepay Your Mortgage Or Student Loan?)

    With low-interest rate loans, you might be better off paying just your monthly minimum and investing whatever extra funds you have.
  7. Credit & Loans

    Not a U.S. Citizen? A Home Loan is Still Possible

    Many banks and mortgage companies offer conventional and FHA home loans to non-U.S. citizens, if they can verify their work history and financial status.
  8. Credit & Loans

    Should You Care About The Rising Cost Of College?

    It’s nearly graduation season, so it’s time to weigh in on why you should care about rising college costs, paying for tuition and back student loans.
  9. Credit & Loans

    Is it Worth Saving Up for a Bigger Down Payment?

    There are numerous low-down-payment mortgage options out there, but sometimes it makes sense to build up your savings so you can borrow less.
  10. Credit & Loans

    Is A 30-Year Mortgage Really Best?

    It's the most popular choice, but home buyers with 30-year mortgages may be paying more to finance their home than they need to.

You May Also Like

Hot Definitions
  1. Redemption

    The return of an investor's principal in a fixed income security, such as a preferred stock or bond; or the sale of units ...
  2. Standard Error

    The standard deviation of the sampling distribution of a statistic. Standard error is a statistical term that measures the ...
  3. Capital Stock

    The common and preferred stock a company is authorized to issue, according to their corporate charter. Capital stock represents ...
  4. Unearned Revenue

    When an individual or company receives money for a service or product that has yet to be fulfilled. Unearned revenue can ...
  5. Trailing Twelve Months - TTM

    The timeframe of the past 12 months used for reporting financial figures. A company's trailing 12 months is a representation ...
Trading Center