Definition
A first mortgage is a registered mortgage that ranks first on a property's title. If the property is sold to repay debts, the first mortgagee is repaid in full before any other secured lender. Because it carries the least risk of any mortgage on the property, a first mortgage usually allows the highest loan-to-value ratio and lower pricing than a second mortgage.
Every registered mortgage has a place in line. The first mortgage sits at the front.
Why ranking matters
If a borrower defaults and the property is sold, the sale proceeds pay the first mortgagee first, then any second mortgagee, then anyone else. That certainty is why first mortgage lenders can usually lend a higher share of the property’s value and charge less than later-ranking lenders.
First mortgages in business lending
Business owners use first mortgages when buying commercial premises, when their property is unencumbered, or when they refinance an existing home loan to release equity. A first mortgage refinance usually involves a fuller assessment than a second mortgage, so it can take longer. Our guide to first versus second mortgages compares the two routes.
Questions to ask
Ask what maximum loan-to-value ratio applies, how the property will be valued and what the total setup costs are. To explore whether a first mortgage could suit your business, make one enquiry.
Common questions
Can business finance sit in first position?
Yes. If the property has no existing mortgage, or the existing loan is refinanced, a business loan can be secured by a first mortgage.
What happens to a second mortgage if the first is repaid?
The second mortgage can move up in ranking, or both can be refinanced into a single first mortgage.
Sources and further reading