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What Does First Mortgage Mean?
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.
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
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