What is a first mortgage and a second mortgage?
A first mortgage basically mean this is the primary mortgage that the mortgage company (lienholder) is in first position and if you default and they foreclose, they will get paid first. A second mortgage is usually a smaller amount that the lienholder is in second position and if you default on both mortgages, the first mortgage company usually will foreclose and if they do not get enough money to pay off both loans, they are not obligated to pay the second mortgage. A second mortgage is lot more riskier for a mortgage company than the first for the above stated reasons.
If you only take out one mortgage, which is the norm for many homebuyers, you will only have a "first mortgage." As other suggested, it is the primary lien (or loan) attached to the home, meaning the lender who issues it will be the first to get compensated in the event of a foreclosure.
If for some reason you take out an additional mortgage, known as a second mortgage, perhaps at the time you take out the first, or later in the form of a home equity line, it will be subordinate to (below) the first mortgage.
This means the second mortgage issuer takes on more risk because they’re paid last in the event of foreclosure. This explains to some degree why interest rates are higher on second mortgages.
Source: What is a second mortgage?
A mortgage acts as a security to the lender against default. This means that if you take a loan and mortgage your house, then in case of default, the lender can sell your house and get their money back. A first mortgage means that in the case of default, the lender will have first right to the proceeds of the sale. A second mortgage means that in case of default, the lender will get repaid after the lender of the first mortgage has been paid off. Since the security for the lender of the second mortgage is lesser than the first mortgage, the terms of a second mortgage are generally not as attractive as the terms of the first mortgage. The amount of loan you can get on a second mortgage depends on the equity that you have in your home. Thus it depends on the current market price of your home and the amount of mortgage that you have already paid. A higher market price and equity will translate into better terms for you.
