First-Lien HELOC: How It Works, When It Makes Sense, and Top Lenders

Tapping into your home equity can be a smart way to manage large expenses, but not all home equity products work the same way. If you’re mortgage-free, or thinking about replacing your mortgage, one option might stand out: a first-lien HELOC.

This lesser-known strategy can help you access equity, pay down high-interest debt, or even refinance your mortgage. But it’s important to understand how a first-lien HELOC works, how it differs from second-lien options, and what to watch out for before committing.

Table of Contents

1. What is a first-lien HELOC?
2. First-lien vs. second-lien HELOC
3. What is a first-lien HELOC strategy?
   1. Pay off your mortgage
   2. Other uses
4. Best lenders
5. Can a first-lien HELOC help you tap more equity?
   1. Are first-lien HELOC rates lower?
6. Pros and cons
7. How to get one
8. Should you get one?

What is a first-lien HELOC?

A first-lien HELOC is a home equity line of credit that sits in the first position on your home. It becomes the primary loan secured by the property, either because you use it to pay off your existing mortgage or because your home is already owned free and clear.

Here is what defines it:

• It is the only or primary lien on the property.
• It functions like regular HELOC, allowing you to borrow against your equity as needed.
• The lender has the first claim to repayment if you default.

In short, a first-lien HELOC is simply a HELOC that replaces your mortgage or becomes your main home loan.

First-lien vs. second-lien HELOC

While most HELOCs sit in second-lien position behind a primary mortgage, a first-lien HELOC replaces your mortgage entirely or becomes the only lien on your home.

• First-lien HELOCs offer the advantage of streamlining your debt into a single loan, often with lower rates. But they also come with more risk if your financial situation changes, especially if you rely on interest-only payments.
• Second-lien HELOCs are more common and allow you to access equity while keeping your original mortgage. However, they may come with slightly higher rates and tougher qualification requirements due to their subordinate lien status.

What is a first-lien HELOC strategy?

A first-lien HELOC strategy involves using a HELOC in the primary lien position as both your mortgage and your ongoing line of credit. Instead of treating a HELOC only as a way to tap equity, the strategy uses it as your main home loan while giving you flexible access to funds as needed.

Homeowners often use this approach to pay off a traditional mortgage faster, manage cash flow more efficiently, or consolidate higher-interest debt into one revolving credit line.

Using a first-position HELOC to pay off your mortgage

One common strategy is using a first-lien HELOC to eliminate your existing mortgage. Here’s how it typically works:

• You open a first-lien HELOC with a large enough limit to cover your current mortgage balance.
• You pay off the mortgage in full using a draw from the HELOC.
• The HELOC becomes your new primary home loan, and you make payments directly to the HELOC lender.

Some homeowners also deposit their income into the HELOC during the draw period to temporarily lower the principal and reduce interest costs, then withdraw funds as needed for expenses. This cash-flow approach is sometimes marketed as “velocity banking.”

Other uses of HELOCs in the first position

A first-lien HELOC can also be used for more general borrowing needs when your mortgage is already paid off or after you’ve used the HELOC to pay it off. Because the HELOC becomes the only lien on the home, the full credit line is available for whatever you want to finance.

Homeowners often use a first-position HELOC to:

• Consolidate high-interest debt, since the HELOC becomes the primary loan and frees up available credit once the original mortgage is gone
• Cover large expenses, such as home improvements, medical costs, tuition, or business expenses, using the remaining available equity
• Maintain access to equity, because a first-lien HELOC continues to function like a revolving credit line even after replacing the mortgage
• Manage irregular income, as the HELOC can act as a flexible cash-flow tool once it is the only outstanding home loan

In short, once the HELOC is in first position and the mortgage is no longer in place, you can use the remaining credit line however you need, similar to any other HELOC but with the full equity position behind it.

Best first-lien HELOC lenders

Most HELOCs are designed to sit behind an existing mortgage, so not every lender allows its credit line to be used in the first position. To replace your mortgage with a HELOC, you need a lender that specifically offers a first-lien product or permits its HELOC to serve as the primary lien on the home.

The lenders below offer first-lien HELOCs or allow their HELOCs to be used in first position.

Can a first-lien HELOC help you tap more equity?

Each lender determines how much you can borrow with a first-lien HELOC. Generally, lenders look for borrowers with a maximum loan-to-value ratio (LTV) 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.

Are first-lien HELOC rates lower?

Often, yes. First-lien HELOCs can come with lower rates than second-lien HELOCs because the lender holds the primary claim on your home. Being in first position reduces the lender’s risk, and that risk difference is usually reflected in the pricing.

However, lower rates are not guaranteed. Your rate will still depend on personal factors such as your credit score, debt-to-income ratio, loan amount, and overall market conditions. It also depends on how the lender structures its first-lien product. Some lenders offer promotional or introductory rates, while others price their first-lien HELOCs similarly to a traditional adjustable-rate mortgage.

The key takeaway is that first-lien HELOCs can be cheaper than second-lien HELOCs on paper, but the actual rate you receive will depend on your profile and the lender’s terms.

Pros and cons of a first-lien HELOC

A first-lien HELOC can be a flexible and powerful financial tool, but it isn’t right for everyone. Here are several key advantages and drawbacks to consider:

Pros

• Access to equity on flexible terms

  Like other HELOCs, first-lien options let you borrow as needed, often through checks, debit card, or transfers.

• Potentially lower interest rates

  First-lien HELOCs are typically considered lower-risk by lenders than second-lien loans, which may translate to better rates.

• One loan, one payment

  Replacing your mortgage with a first-lien HELOC streamlines your finances into a single monthly payment.

• Tax advantages

  If used to buy, build, or improve your home, interest may be tax-deductible. (Check with a tax advisor.)

Cons

• Variable interest rates

  Many first-lien HELOCs have rates that can rise over time, increasing your monthly payments.

• Risk of foreclosure

  Because the HELOC is secured by your home, missed payments can lead to foreclosure—just like a traditional mortgage.

• Interest-only payments can be risky

  If you only pay interest during the draw period, you may face a large principal balance later on.

• Not offered by all lenders

  First-lien HELOCs are less common than traditional second-lien HELOCs, which may limit your lender choices.

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How to get a first-position 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. 

Should you get a first-lien HELOC?

A first-lien HELOC can be an attractive tool to replace a primary mortgage, but 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.