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kate_sept2004/Getty Images May 25, 2022 Dhara Singh is a former mortgage reporter for Bankrate. Bankrate senior editor for mortgages Bill McGuire has been writing and editing for more than four decades at major newspapers, magazines and websites. Bankrate logo The Bankrate promise
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Founded in 1976, Bankrate has a long track record of helping people make smart financial choices. We’ve maintained this reputation for over four decades by demystifying the financial decision-making process and giving people confidence in which actions to take next. Bankrate follows a strict , so you can trust that we’re putting your interests first. All of our content is authored by and edited by , who ensure everything we publish is objective, accurate and trustworthy. Our mortgage reporters and editors focus on the points consumers care about most — the latest rates, the best lenders, navigating the homebuying process, refinancing your mortgage and more — so you can feel confident when you make decisions as a homebuyer and a homeowner. Bankrate logo Editorial integrity
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You have money questions. Bankrate has answers. Our experts have been helping you master your money for over four decades. We continually strive to provide consumers with the expert advice and tools needed to succeed throughout life’s financial journey. Bankrate follows a strict , so you can trust that our content is honest and accurate. Our award-winning editors and reporters create honest and accurate content to help you make the right financial decisions. The content created by our editorial staff is objective, factual, and not influenced by our advertisers. We’re transparent about how we are able to bring quality content, competitive rates, and useful tools to you by explaining how we make money. Bankrate.com is an independent, advertising-supported publisher and comparison service. We are compensated in exchange for placement of sponsored products and, services, or by you clicking on certain links posted on our site. Therefore, this compensation may impact how, where and in what order products appear within listing categories. Other factors, such as our own proprietary website rules and whether a product is offered in your area or at your self-selected credit score range can also impact how and where products appear on this site. While we strive to provide a wide range offers, Bankrate does not include information about every financial or credit product or service. What is a first mortgage
A first is the primary or initial loan obtained for a property. When you get a first mortgage to buy a home, the mortgage lender who funded it places a primary on the property. This lien gives the lender the first right or claim to the home if you were to default on the loan. Other lenders who have a lien on your home are secondary to the lender of the first mortgage. How does a first mortgage work
A first mortgage is typically used to finance the cost of . Depending on the type of first mortgage you get, you’ll likely need to pay a percentage of this cost upfront as a down payment. Then, you’ll be responsible for making monthly payments — consisting of a portion of the amount you borrowed plus interest, homeowners insurance and property taxes — until the loan is repaid. The first mortgage, sometimes referred to as having the “senior” lien position, takes priority over any , or junior lien, attached to the property. Let’s say you purchased a home with a mortgage, and later took out a (a second mortgage). If you were to default, your first mortgage lender would have the first claim to the proceeds from a sale. The second mortgage lender would then have a claim to the remaining proceeds, if any. This chain of priority continues if you have multiple liens. There are some exceptions, however. If you owe property taxes, they’ll typically be repaid first before other claims, and if you’re filing for bankruptcy, a court can decide which claims take precedence. First mortgage example
Sarah buys a home priced at $300,000 with the help of a $240,000 mortgage. This is the first mortgage on the property. After some time, her home is now worth $330,000, and she has paid down the balance on her first mortgage to $100,000. She then decides to remodel her kitchen and takes out a home equity loan — a second mortgage — for $50,000. Say Sarah falls behind on payments and is unable to work out a solution with her mortgage lender. The lender now has the ability to start the foreclosure process in order to recoup its losses. If her home were to sell at auction for $330,000, the first mortgage lender can recoup all of the $100,000 she still owes, and the second mortgage lender can recoup the $50,000. If the home were to sell for less, the first mortgage lender might only receive a portion of the proceeds, and the second mortgage lender might receive nothing at all. How are first mortgages different from second mortgages
Both first and second mortgages are secured by the property itself (the collateral for the loan), but a first mortgage is used to buy the property, while a second mortgage can be used for a variety of reasons. These can include , or , healthcare costs, a vacation or other expenses. Second mortgages can also be used to help you buy a property. Many are constructed as a first and second mortgage, with the second mortgage covering the down payment and closing costs. Because they are riskier for a lender, second mortgages usually have higher interest rates than first mortgages. The two most common types of second mortgages are home equity loans, which have a fixed rate, and (HELOCs), which have a variable rate. Lastly, at tax time, you can deduct the interest on your first mortgage up to a certain threshold. You can only deduct the interest on a home equity loan if you used the funds to improve your home. SHARE: Dhara Singh is a former mortgage reporter for Bankrate. Bankrate senior editor for mortgages Bill McGuire has been writing and editing for more than four decades at major newspapers, magazines and websites. Related Articles