What’s the difference between a second mortgage and a first mortgage?
A first mortgage is the primary mortgage loan that goes toward paying a home. This could be the loan you used for the initial purchase of the home or a refinance.
For example, you purchased a home for $300,000 by getting a loan from Bank A. Bank A places a lien on your home that’s removed once you pay off the loan. This is your first mortgage. 5 years later, you decide to refinance for a lower rate. The refinance would also be considered a first mortgage because it is still the primary loan that pays for the home.
A second mortgage, or home equity loan, is a loan you take out using the equity you have available from your home’s value.
For example, you owe $100,000 on your home, and it’s worth $300,000. You have $200,000 in home equity. You need a new stove, money for a wedding, and want to pay off some high-interest credit cards, so you take out a second mortgage for $100,000 with Credit Union A. Bank A has the primary lien and Credit Union A has a secondary lien on your home.