Legal Definitions - first mortgage

A first mortgage is the primary loan secured by a property, meaning it holds the highest priority among all claims against that property. If the property owner defaults on their loans and the property is sold (e.g., through foreclosure), the lender holding the first mortgage is legally entitled to be repaid in full before any other lenders or creditors with claims on that property. This priority makes the first mortgage the most senior debt against the property.

• Example: Buying a New Home

  Sarah purchases her first home for $400,000. She makes a $80,000 down payment and takes out a $320,000 loan from ABC Bank to cover the remaining cost. This loan from ABC Bank is recorded as the first mortgage on her property. If Sarah were to later take out a home equity line of credit (HELOC) from another lender, that HELOC would be a "second mortgage" or junior lien, meaning ABC Bank's claim would be satisfied first if the home ever had to be sold to repay debts.

• Example: Refinancing with a New Lender

  John initially bought his house with a mortgage from XYZ Credit Union. Years later, he decides to refinance his home to get a lower interest rate, choosing a new loan from DEF Bank. When DEF Bank provides the new loan, a portion of that loan is used to pay off the original mortgage from XYZ Credit Union. Once the XYZ Credit Union mortgage is fully paid and released, DEF Bank's new loan is then recorded as the first mortgage on John's property, taking the top priority position. This process ensures there's always a primary, senior lienholder.

• Example: Commercial Real Estate Development

  A real estate developer, "Urban Heights Inc.," secures a $10 million loan from Big City Bank to finance the construction of a new office building. This $10 million loan is recorded as the first mortgage on the undeveloped land and the future building. This gives Big City Bank the primary claim on the property. If Urban Heights Inc. later needs additional funding and takes out a smaller, secondary loan from a different investor, that investor's claim would be subordinate to Big City Bank's first mortgage, meaning Big City Bank would be paid first from any proceeds if the project faced financial difficulties.