First mortgage
What is a first mortgage, and why does a lender insist on ranking first?
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BY MICHAEL SHANG · SIXTEEN YEARS IN COMMERCIAL BANKING · UPDATED
// THE SHORT ANSWER
A first mortgage is security over land and buildings that ranks ahead of any later mortgage over the same property: on a sale, the first mortgagee is repaid in full before a second mortgagee receives anything. Lenders against property ask for it because their loan-to-value ratio only means something if no one stands between them and the value — a second mortgage over the same asset carries most of the risk of a fall in price. On a development loan it covers the land and everything built on it, and its release unit by unit is how the sales repay the loan.
BASIS Practitioner judgment from sixteen years in commercial banking, set out in How Bankers Think (Highbank Press, 2026). Every borrower on this site is a composite constructed for teaching, not a client. The market is mid-market commercial lending as practised in New Zealand and Australia; where a convention differs elsewhere, the page says so.
// WORKED IN
// NEXT TO IT
- Personal guarantee release
- General security agreement (GSA)
- Subordination
- Intercreditor agreement
- Loan to value ratio (LVR)
- Forced-sale value
- PPSR (Personal Property Securities Register)
- Retention of title
- Purchase money security interest (PMSI)
- Preferential creditors
- Letter of comfort
- Cross-guarantee
- Floating charge
- Structural subordination
- Recovery waterfall
- Pari passu
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