First mortgage can be nerve-racking for a bunch of reasons. Not only are they large financial commitments, but also the paperwork and legal facets can leave your head spinning. Your first mortgage is, above all else, the primary lien against your home. It will take precedence over all other mortgages. If you sell the home or the borrower defaults, the first mortgage will be paid before any other lien on the property.
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When you are getting your first mortgage, you will have to sign a legal document that promises to pay back the amount you borrow according to the terms set out. Then, you will also sign the mortgage itself, which gives the lender a security on the property. If you do not pay back the loan, for whatever reason, your first mortgage gives the lender the right to sell the home to recoup their money.
So what does this mean if you want to get a second mortgage down the road? Or you default? For example, let’s say you buy a $300,000 home and put $30,000 down and finance the remaining $270,000 with your mortgage. Down the road, you get a second mortgage for $20,000. Financial difficulties result in the lender foreclosing on the home and the home is sold but they only get $280,000 in the sale. This means that the first mortgage will get back the full $270,000, but the second mortgage will only get $10,000, since that is all that was left.
Keep in mind that your lender will not own your property through a first mortgage; they will only have a lien on it. You will be free to do as you see fit with your home up to transferring the property without the lender’s consent, unless you plan to pay off the mortgage in full. This is because your lender will want to confirm that whomever you’re transferring the mortgage to also has the means to pay it. Since your lender will be paid in the event of a default, you usually don’t need their permission to get a second mortgage.
If you have more questions or would like to better understand what your first mortgage will entail, our mortgage brokers would be happy to speak to you. Contact us now at Group Mortgage Solutions for the help we can offer you.
