What defines a first mortgage?

A first mortgage is defined by the lender's primary claim against the property. This means that in the event of a default, the lender who holds the first mortgage has the first right to repayment from the proceeds of a sale of the property. This priority status is crucial because it affects the risk associated with the loan and influences the terms, interest rates, and eligibility.

When a property has a first mortgage, it means that no other loans are in priority before this particular mortgage; consequently, if the borrower fails to meet their obligations, the first mortgage lender stands first in line to recuperate their investment. This priority claim is essential for both the lender and borrower, as it establishes the basis of trust and security for the loan.

Other options might focus on different aspects of mortgage loans. For instance, loans secured through home equity could be a second mortgage, and arrangements where only interest is paid might refer to interest-only loans, which do not define the priority of claim. Similarly, investment property loans can encompass a variety of mortgage types without specifically indicating the first mortgage status. Understanding the concept of a first mortgage as having primary claim emphasizes its importance in securing financing for a property and the associated risks and benefits for both lenders and borrowers.