How a First-Lien HELOC Works

A home equity line of credit (HELOC) allows eligible homeowners to tap into their equity to fund home improvements, consolidate debt, or cover other expenses.

If a homeowner is still paying down the mortgage they used to buy the home, a HELOC takes a second-lien position. However, if you own your home outright or use the HELOC to pay off your mortgage, you likely have a first-lien HELOC.

Several unique benefits make first-lien HELOCs attractive in certain situations.

What does it mean to be the first lien?

A lien represents a legal claim to property that’s associated with a debt. When someone takes out a mortgage to buy a home, the lender is in the first-lien position. If the borrower defaults on the mortgage, the lender can initiate foreclosure proceedings to take the home back.

Second-position liens also represent a legal claim to property that’s used to secure a debt. Ordinarily, a home equity loan or HELOC is considered a type of second lien or second mortgage.

The difference matters because a second lien is subordinate to a first lien. So if a borrower defaults on a debt obligation, the creditor in the first-lien position takes priority for getting repaid. 

Are there benefits to borrowers with a first-lien HELOC?

A HELOC can be attractive to homeowners who want to be able to access their equity through a revolving line of credit. Homeowners might prefer a first-lien HELOC over a second mortgage for several reasons.

For instance, you might consider a first-lien HELOC if you:

• Want to use the HELOC to pay off the remaining balance on your first mortgage loan.
• Are nearing the end of your mortgage term and want to maximize any remaining mortgage interest deductions you’re able to claim.
• Would like to pay a lower interest rate for mortgage debt.

First-lien HELOCs may be easier to qualify for than second-lien HELOCs, and they may offer more favorable interest rates. Second liens tend to be riskier for lenders and may have stricter credit requirements or carry higher interest rates.

First-lien HELOCs typically offer the same benefits as second-lien HELOCs. That includes access to a flexible credit line via debit card, paper checks, or electronic transfers to a bank account. Other potential benefits include lower interest rates, longer draw periods, less stringent credit requirements, and higher borrowing limits.

How to get a first-lien HELOC

There are two ways to get a first-lien HELOC:

1. The first mortgage is paid off. If you already repaid your original mortgage in full, the home has no liens at this point, so a HELOC would be the only outstanding debt and thus the first lien on the home. This benefits you because you can draw against your equity as needed, and you may be able to deduct the interest they paid.
2. Use the funds from the HELOC to pay off your mortgage. The HELOC would then become the first lien, replacing the mortgage and leaving you with just one monthly payment to make. In this case, you can replace your old mortgage with a new one at a potentially lower interest rate. You can draw against your home’s equity to cover expenses, and you might also get the benefit of a mortgage interest deduction. 

Best first-lien HELOC lenders

Numerous lenders offer first-lien HELOCs, including banks, credit unions, and online mortgage lenders. When comparing lenders, it’s important to consider credit requirements, equity requirements, HELOC borrowing limits, and interest rates. 

Here’s how four of the best first-lien HELOC lenders stack up.

Lender	Rates (APR)	HELOC Amounts	Repayment Terms
Figure	5.14% – 12.25%, fixed	$20,000 – $400,000	5, 10, 15, or 30 years
Hitch	7.75% – 13.00%, variable	$25,000 – $500,000	20 years
Spring EQ	Starting at 9.50%, variable	$25,000 – $500,000	20 years
Bethpage FCU	Starting at 7.49%, fixed intro rate*	$10,000 – $1 million	10-year draw, 20-year repayment

* 12-month introductory rate for VantageScores of 720 and up¹, then variable.

Figure: Best overall

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LendEDU rating: 4.9 out of 5

• Borrow up to $400K, redraw up to 100%
• Digital app & online appraisal
• Check your rate without impacting your credit

Figure HELOCs are available for single-family residences, townhouses, planned urban developments (PUDs), and most condos. 

Key features of Figure’s first-lien HELOCs include:

• Shorter terms
• No closing costs or out-of-pocket costs
• Fixed interest rates
• Ability to redraw
• Quick access to cash

No in-person appraisal is needed. It’s possible to get approved in as little as five minutes, with access to funding in as few as five days. The minimum credit score requirement for a Figure HELOC is 640 in most states. 

Note, however, that you must draw 100% of the funds at HELOC origination. As you repay the, it replenishes available credit that can then be redrawn.

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Spring EQ: Best multi-product application

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LendEDU rating: 4.3 out of 5

• See if you’re eligible for a HELOC or home equity loan with one application
• Borrow up to $500,000
• Not available in AK, HI, ID, MA, MO, ND, NY, SD, WV, or WY

Spring EQ offers several home loans, including HELOCs. The application process can be completed online, and most homeowners won’t require an in-home appraisal to close on a line of credit.

Homeowners can access up to 95% of their home’s equity, with a cap of $500,000.

Hitch: Best for fast funding

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LendEDU rating: 4.4 out of 5

• Funds can be available in just a few days
• Access up to 95% of your home’s equity
• Prequalification will not impact your credit
• Available in CA, CO, CT, DE, FL, IL, MD, NH, NJ, NY, NC, OR, PA, SC, VA, WA, and DC

Hitch offers home equity lines of credit for home renovations, debt consolidation, large purchases, and other expenses. Borrowers can complete the entire application process online.

All HELOCs offered by Hitch come with a variable rate, but you will have the option to convert part of your balance to a fixed-rate loan.

There’s a 10-year draw period, followed by a 20-year repayment period. If you need to redraw funds, you can do so.

Bethpage Federal Credit Union: Best credit union

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LendEDU rating: 4.2 out of 5

• No closing costs or origination fees²
• Use funds for home improvement, debt consolidation, or other expenses

Bethpage Federal Credit Union offers first-lien HELOCs for individuals who want a home loan and don’t have a mortgage with another lender—or will use their HELOC funds to pay off their first mortgage. 

A Bethpage FCU first-lien HELOC has no fees or closing costs, on lines up to $500,000.² Bethpage offers a variable rate with the option to fix for the full or a portion of the line.³

Bethpage takes the equity in your home, as well as your income and credit score, into consideration for approval. Borrowers also need to meet membership requirements to join Bethpage FCU as a condition of applying for a first-lien HELOC. 

Does having a first-lien HELOC let me tap into more equity?

It’s up to each lender to determine how much you can borrow with a first-lien HELOC. Generally, lenders look for borrowers with a maximum loan-to-value ratio in the 80% to 90% range, though some might bump that up to 95%. 

A first-lien HELOC could allow you to borrow more than a second-lien HELOC if your lender allows for a higher max LTV on that product. 

Here’s an example of how much equity you might be able to tap into if you’d like to replace your current mortgage with a first-lien HELOC:

Home value	Outstanding mortgage debt	Lender’s max LTV (80%)
$300,000	$150,000	$240,000

If you subtract the outstanding mortgage debt ($150,000) from your lender’s max LTV ($240,000), you’d have $90,000 of the HELOC left after paying off the first mortgage.

Should you replace your mortgage with a first-lien position HELOC?

A first-lien HELOC can be an attractive tool to replace a primary mortgage, but there are points to consider before doing so. Ask yourself:

• Is the HELOC interest rate more favorable? If so, paying off your mortgage with the HELOC could make sense. You’d still have the ability to draw on your remaining equity to use any way you’d like. And since you’d only have one loan, you’re not adding another mortgage payment to your monthly budget. 
• Is the HELOC rate fixed or variable? A variable-rate option means monthly payments are less predictable. A significant increase in your HELOC payment could put a serious strain on your budget. 
• Does the HELOC fit your budget? Since a first-lien HELOC is secured by your home, you accept the risk of losing your property if you default. So it’s important to determine where a first-lien HELOC might fit into your budget and what resources you’d have to fall back on to make loan payments if your job or income situation changes. 
• Can you afford more than interest-only payments during the draw period? If not, you could face a large amount of principal left to pay down once the repayment period begins. 

A first-lien HELOC may not be the right choice for all homeowners, but the benefits it yields are valuable in certain cases. You can use a first-lien HELOC to refinance your primary mortgage while gaining flexibility from access to your equity. 

If you’re interested in a first-lien HELOC, we recommend shopping around for the best offers before moving forward.