What Is A First Mortgage And What Are Its Pros And Cons? Whether you are a first time homebuyer or a businessman or a school student and you are in search of funds, you can surely go for mortgages. You can also approach the banks and other traditional lending institutions and organizations to obtain the money required. One such way of arranging funds for meeting your financial needs is through first mortgage. Let us have a brief look at what is a first mortgage and what are its pros and cons as follows: What is a First Mortgage? In real estate sector, one can have multiple loans against the same property; however the lien that is obtained for the very first time against the real estate is called as first mortgage. This loan is also known as first position trust deed. The loans that are obtained subsequently are known as second mortgages, third mortgages and so on. There is a specific eligibility criteria followed by the lenders to ensure the credit worthiness of the borrower before granting the loan amount. Some of the most basic points include factors like credit score, debt-to-income ratio, and monthly income, to name a few. It is only after you, the borrower, fulfill the given set of requirements; you qualify for a first mortgage. Conversely, if the lenders find you unfit for the loan, either because your credit score is way below the acceptable level or because your credit report contains a bankruptcy, you will have to wait until the report gets repaired.
Advantages The biggest advantage of a first mortgage is the low interest rate. Since, it is a secured mortgage which is backed by your home; the lender is assured of its money, as he/she has all the rights to take the possession of the estate in case the debtor fails to repay the monthly obligations or the complete loan within the specified time interval. Another advantage is the duration of payback period which usually ranges between 20 to 30 years. With such a long term, you get enough time to arrange the monthly installments and avoid any default. However, both the rate of interest and the repayment period might differ from one lender to the other. Therefore you need to be careful while choosing your lender, who is ready to compete for your deal and offer you with the most desirable amount at highly affordable rate. Disadvantages
In addition to the above mentioned advantages, there are some disadvantages as well. The biggest risk with a first mortgage is losing on your property. If you are unable to pay back the loan in full, within the given time frame the lender or the lending institution can foreclose your property to raise oneâ€™s investment. Furthermore, even though a first mortgage eliminates the undue pressure of junk fee, a financial move like refinancing can jeopardize the amount you save on the monthly installments. Therefore be careful when planning such moves and ensure that the terms and conditions of the new home loan do no harm to your savings in any way. It is advisable to consult a knowledgeable and experienced mortgage specialist or a broker when searching for a lender, because they will not only introduce you to better options but will also educate you about the intricacies of first mortgages so that you make a wise financial decision.