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?
2. Pros and cons
3. First vs. second lien
4. How to get a first-lien HELOC
5. Best lenders
6. Can a first-lien HELOC help you tap more equity?
7. Is a first-lien HELOC a smart move?
8. FAQ
   1. What is a first-lien mortgage?
   2. Can a HELOC be in the first-lien position?
   3. Is a HELOC considered a subordinate lien?

What is a 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. 

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.

First-lien HELOC 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.

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.

---

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.

Is replacing your mortgage with a first-lien HELOC a smart move?

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.

FAQ

What is a first-lien mortgage?

A first-lien mortgage is the primary loan used to buy your home. It has the first legal claim to the property, which means it gets priority in foreclosure situations.

Can a HELOC be in the first-lien position?

Yes. A HELOC can be in first position if it’s the only loan on the home or if it’s used to pay off an existing mortgage, making it the new primary lien.

Is a HELOC considered a subordinate lien?

Usually, yes—but if it becomes your only mortgage or pays off your primary mortgage, it becomes a first-lien HELOC.