How a First-Lien HELOC Works
A first-lien HELOC could provide you with access to equity and savings on your mortgage. It's important to weigh the pros and cons before applying.
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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.
In this guide:
- What does it mean to be the first lien?
- Are there benefits to borrowers with a first-lien HELOC?
- How to get a first-lien HELOC
- Best first-lien HELOC lenders
- Does having a first-lien HELOC let me tap into more equity?
- Should you replace your mortgage with a first-lien position HELOC?
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
One situation in which a homeowner might get a first-lien HELOC is if they’ve already repaid their original mortgage in full. Since the home has no liens at this point, a HELOC would be the only outstanding debt and thus the first lien on the home.
This benefits the homeowner because they can draw against their equity as needed, and they may be able to deduct the interest they paid.
Now, what if a homeowner is still repaying their first mortgage? They could still get a first-lien HELOC. If they use the funds from the HELOC to pay off their mortgage—ideally at a lower interest rate—the HELOC becomes the first lien, replacing the mortgage and leaving the homeowner with just one monthly payment to make.
In this case, the homeowner can replace their old mortgage with a new one at a potentially lower interest rate. They can draw against their home’s equity to cover expenses, and they 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% to 12.25%, fixed | $20,000 to $400,000 in most states | 5, 10, 15, or 30 years |
| Bethpage FCU | 6.25% to 7.63%, fixed | $25,000 to $1 million | 5, 10, or 20 years |
| Citizens Bank | Starting at 5.25%, variable | Minimum loan amount is $17,500; maximum loan amount is not disclosed | 10-year draw period, with a 15-year repayment term |
| Truist | Starting at 7.05%, variable | Not specified | 5, 10, 15, or 20 years for fixed-rate HELOCs; 10-year draw and 20-year repayment for variable-rate HELOCs |
Figure
- 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.
Bethpage Federal Credit Union
- No closing costs or origination fees
- Use funds for home improvement, debt consolidation, or other expenses
Bethpage Federal Credit Union offers first-lien HELOCs for individuals who want a fixed 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, and the loan amount can be up to $250,000. Rates are fixed for the life of the loan.
Bethpage takes your home’s equity, 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.
Citizens Bank
- Choose between interest-only or principal and interest payments during the draw period
- Apply online, in-person, or over the phone
- $50 annual fee
Citizens Bank offers home equity lines of credit for home renovations, debt consolidation, large purchases, and other expenses. Borrowers can apply online, over the phone, or in person. On approval, they can access their HELOC funds via online and mobile banking or paper checks.
Rates are variable, rather than fixed. This is important because a fixed-rate HELOC can offer predictable monthly payments and interest. A variable rate HELOC, on the other hand, can mean fluctuating rates and payments.
Citizens isn’t the fastest HELOC option, with a typical time of 30 days from application to funding. But borrowers have two choices for payments during the 10-year draw period: interest-only or principal and interest. This added flexibility can be appealing to borrowers who don’t need immediate access to funds.
Truist
- Choose a fixed or variable rate
- A dedicated loan officer will be assigned to you to answer your questions
Truist offers qualified borrowers variable and fixed-rate HELOCs with flexible terms.
Borrowers must live in a state where Truist offers HELOCs. These include:
- Alabama
- Arkansas
- California
- District of Columbia
- Florida
- Georgia
- Indiana
- Kentucky
- Maryland
- Mississippi
- North Carolina
- New Jersey
- Ohio
- Pennsylvania
- South Carolina
- Tennessee
- Texas
- Virginia
- West Virginia
Borrowers can choose to pay closing costs out-of-pocket or to have Truist advance closing costs.
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 if the interest rate is more favorable. 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.
However, take into account the rate you might get on a first-lien HELOC and whether it’s 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.
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.
Another point to consider is that during the initial draw period, you may have the option to make interest-only payments toward the balance. That could leave you with 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.