What Is a First-Lien HELOC?

A home equity line of credit (HELOC) is a type of second mortgage that allows you to borrow against your home’s equity as many times as you need over an extended period of time. 

In most cases, HELOCs function as second mortgages, but for some borrowers, a first-lien HELOC – one which takes the place of your primary home loan – may provide more flexibility and offer better long-term savings.

How a First-Lien HELOC Works

A first-lien HELOC replaces your current home loan and acts as both a primary mortgage and a revolving line of credit for accessing your built-up equity. This can be a considerable source of funds for some, as US homeowners cumulatively possess more than $35 trillion in residential equity.

Unlike a traditional HELOC, which is a second mortgage that sits behind your primary loan, a first-lien HELOC pays off your existing balance – if you have one – and then provides ongoing access to a set amount of your home’s equity.

For example, if your home is worth $450,000, an 80% LTV first-lien HELOC would have a total credit limit of $360,000. If you owed $150,000 on your existing mortgage, this balance would be paid off with your HELOC at closing, and you’d have the remaining $210,000 line of credit to use as needed.

Draw and Repayment Periods

First-lien HELOCs are typically broken down into two periods: the initial draw phase and the secondary repayment phase.

Draw Phase

During the draw phase – which usually lasts five to ten years – you have unfettered access to your equity. You can borrow, repay, and reborrow the funds as often as you choose, although you will typically only be required to make monthly interest payments on your balance.

Repayment Phase

During the repayment phase – often 10 to 20 years – your line of credit will close and you’ll repay the full principal balance, with interest, much like a traditional loan.

Key Features of a First-Lien HELOC

What sets a first-lien HELOC apart from traditional mortgages and standard second-position home equity lines of credit? Let’s take a look at some of the key features.

Primary Lien Position Advantages

Since first-lien HELOCs replace your existing mortgage, you’re only responsible for making one single monthly payment. By contrast, maintaining a traditional mortgage and taking out a second-position HELOC to access your equity would mean keeping up with payments on both loans.

Plus, since first-lien HELOCs have priority if you were to go into default, they tend to have lower interest rates than second-position loans, which incur a higher level of risk for the lender.

Flexible Draw and Repayment Options

A HELOC is a revolving line of credit, much like a credit card. That means that you can use the funds, repay the balance, and still have access to the credit as many times as you’d like throughout the initial draw period.

This provides a high level of flexibility in how you use – and repay – your loan. However, you generally don’t need to repay your borrowed balance during the draw period if you don’t want to. Most HELOCs only require you to make payments on accrued interest until the loan enters its repayment phase.

Real-Time Access to Equity

You can access your equity whenever you need it through a special debit card or checks linked to your line of credit. These funds can be used for just about any purpose, including:

• Making home improvements
• Consolidating high-interest debts
• Covering medical bills and other healthcare expenses
• Investing or starting a business
• Big-ticket purchases, such as a vacation or a new vehicle
• To provide a financial safety net for unexpected emergencies

First-Lien vs Second-Lien HELOCS

So far, we’ve covered some of the key features of a first-lien home equity line of credit. Now, let’s get a little more specific about how these unique mortgages differ from the more common second-lien HELOC.

Lien Position and Loan Structure

First-lien HELOCs occupy the primary lien position on your home. If your loan were to go into default, the lender would be first in line – after any government tax obligations – to get paid.

Traditional second-lien HELOCs, however, sit behind your primary loan, meaning that the lender only gets paid once your primary mortgage is satisfied.

This adds a level of risk for standard HELOC lenders, which can equate to higher interest rates and less favorable loan terms. Because of the added security, first-position HELOCs tend to have lower rates and more borrower-friendly terms.

Impact on Existing Mortgages

Standard HELOCs are a type of second mortgage that exists on top of your primary loan. This means that you’ll be making two separate payments every single month.

First-lien HELOCs, on the other hand, replace your existing loan and result in just a single monthly mortgage payment.

Side-by-Side Comparison

Here’s a quick side-by-side comparison highlighting some of the biggest differences between first and second-lien HELOCs.

	First-Lien HELOC	Second-Lien HELOC
Impact on Existing Mortgage	Replaces current home loan	Does not affect current loan
Monthly Payments	One monthly payment	Two separate payments
Interest Rate Costs	Lower due to lower risk	Higher due to greater risk
Closing Costs	Higher due to larger balance and full appraisal	Lower due to smaller balance and simpler appraisal
Minimum Loan Amount	$100,000+	Commonly $10,000 to $25,000
Maximum HELOC Amount	Up to 90% of your home’s value	Up to 90% of your home’s value, minus current balance

All-In-One First-Lien HELOCS

Some lenders offer a unique variation of a first-lien HELOC that’s referred to as an “all-in-one” loan.

Rather than simply being a line of credit for you to use as needed, these all-in-one first-lien HELOCs are designed to serve as a central hub for all of your finances.

How they work is simple: 

1. You deposit your paychecks into a special account that automatically “sweeps” the funds to reduce your HELOC balance and build your equity.
2. You use your HELOC instead of your primary checking account to cover your monthly expenses.
3. Since your balance is reduced when your paychecks are deposited and only increases when you spend money, your average daily balance remains lower than with a typical first-lien HELOC or traditional loan.
4. This lower average balance translates into lower interest charges, which can save tens or even hundreds of thousands of dollars over the life of the loan. 

For homeowners with healthy positive cash flow – whose monthly expenses tend to be consistently less than their income – this all-in-one first-lien HELOC strategy often shaves years off their loan repayment schedule.

Benefits of a First-Lien HELOC

Why would a homeowner opt for a first-lien HELOC instead of a more traditional mortgage product? For many, the benefits include:

• Access to liquidity for renovations, investments, and emergencies
• Streamlined debt and payment management without the need to carry multiple home loans
• Can be a strategic tool for cash flow-focused homeowners with long-term equity access needs
• Potential tax deductions for interest paid on funds used to make home improvements (tax law is complex and constantly changing – be sure to consult a CPA or tax professional)

Risks and Considerations

Conversely, there are some risks and considerations to take into account before deciding on a first-lien HELOC, such as:

• Variable interest rates can increase the size of your payments if rates rise
• Payments can jump when transitioning into the repayment period, as the balance is typically amortized over just 10 or 20 years
• If you’ve already been paying on your current mortgage for a while, resetting the clock with a first-lien HELOC may significantly extend your payoff period
• Increasing your loan balance and reducing your equity can put you at a greater risk of foreclosure if you run into financial hardship in the future
• First-lien HELOCs are more complex than traditional mortgages, and it’s not always easy to fully understand how they’ll impact your long-term finances

Qualification Requirements

What does it take to get a first-lien HELOC? Let’s dive into some of the most common qualification requirements you’re likely to encounter.

Credit and Income Standards

The Mortgage Bankers Association reports that in 2024, the average HELOC borrower had a credit score of 771. However, many first-lien HELOC lenders will approve homeowners with scores as low as 680. 

It’s not uncommon, though, to see minimums up to 720, and with some companies, the higher your credit score, the more of your home’s equity you’ll have access to.

In addition to meeting minimum credit score requirements, you can expect to need:

• Consistent income from a stable source
• Two years of steady work history
• Debt-to-income ratio of 45% or lower

Equity and Appraisal

The amount of equity you’ll need to take out a first-lien HELOC can vary based on your financial profile and the lender you choose. There is no set standard that all companies follow. However, common loan maximums range from 75% to 90% of your home’s value.

As such, most homeowners will want to have at least 30% to 40% equity in their home to pay off their existing mortgage and still have enough available equity left over for the process to be worthwhile.

Although second-lien HELOCs commonly use an automated valuation model to assess your home’s value, first-priority HELOCs tend to require a full professional appraisal.

Finding the Right Lender

First-lien HELOCs are a relatively niche mortgage product. Not all lenders offer them. At Refi.com, we offer home equity loans and traditional second-position home equity lines of credit, but we do not offer first-lien HELOCs.

Since they’re not available through all lenders, and qualification requirements and available terms can vary, you may need to shop around with several companies to find the right first-position HELOC for you.

First-Lien HELOC vs Other Financial Options

Now that we’ve taken a pretty comprehensive look at first-lien HELOCs, let’s see how they stack up against other commonly offered financial options.

First-Lien HELOC vs Traditional Mortgage

Both first-lien HELOCs and traditional mortgages serve as your primary home loan. However, traditional mortgages typically have fixed rates and are fully amortized over 30 years. This provides steady and predictable monthly payments.

Payments on first-lien HELOCs, on the other hand, can vary based on how much of your equity you use and whether you’re in the draw or repayment phase of the loan. Plus, HELOCs tend to have adjustable rates, meaning that if overall interest rates rise, your payments are likely to as well.

Ultimately, though, a first-lien HELOC offers greater flexibility for accessing your home’s equity since a traditional mortgage would require you to refinance or take out a second loan to do so.

First-Lien HELOC vs Personal Loan

Homeowners with limited equity or who don’t need access to a sizable amount of funds may be better off with a personal loan.

Unlike HELOCs, which place an encumbrance on your property, personal loans are a type of unsecured debt that is based solely on your credit and financial profile. If you were to default on your loan, the lender cannot directly foreclose on your home as they could if you were to default on a home equity line of credit.

Personal loans tend to be for lower amounts, however, and often have higher interest rates since they aren’t secured by real property. The repayment period tends to be shorter, as well, with most personal loans having a term ranging from two to seven years.

First-Lien HELOC vs Cash-Out Refinance

Choosing between a first-lien HELOC and a cash-out refinance often boils down to whether you need access to a lump sum of cash now or want to have a revolving line of credit you can tap into at multiple points over the life of the loan.

Cash-out refinances are a lot more common, meaning you’re more likely to find lenders offering them and willing to compete for your business. However, you can only receive funds once as part of the closing process. This may not be practical if you’re planning a long-term improvement project and are unsure exactly how much funding you’ll need.

Also, cash-out refinances require full monthly principal and interest payments from day one. In contrast, a first-lien HELOC will generally only require you to pay interest on your balance while in the initial draw period. This can lower monthly costs and improve cash flow in the initial years of the loan.

Check out our full guide to cash-out refinances vs. HELOCs to learn more.

Should You Choose a First-Lien HELOC?

While taking out a first-lien HELOC can be a savvy financial move for some homeowners, it may not be the best choice for everyone. Here are some things to consider when deciding if this type of loan is right for you.

Assess Your Financial Goals

A first-lien HELOC offers flexibility in tapping into your home’s equity as and when you need it. But with its different phases and variable interest rate, your payments are likely to change over time. If you prefer stability over flexibility, you may want to consider a home equity loan or cash-out refinance instead.

Check out our full guide to HELOCs vs. Home Equity Loans to learn more.

Understand the Long-Term Impact

Taking out a first-lien HELOC does not inherently increase your mortgage balance. Some homeowners simply want the peace of mind in knowing that they have immediate access to their equity if the need arises.

However, for most borrowers, utilizing their HELOC will mean reducing the equity in their home, which can lead to additional long-term interest costs.

Plus, while the interest-only payments may be affordable during the draw period, it’s not uncommon for homeowners to encounter hardship once their loan enters its repayment phase and they’re responsible for paying the principal balance – amortized over 10 or 20 years – as well.

Talk to a Financial Advisor or Loan Officer

Unlike standard fixed-rate mortgages, which have predictable monthly payments for the life of the loan, numerous variables come into play when anticipating the full implications of a complex financial product like a first-lien HELOC.

While they can provide a vital source of funding for cash flow-conscious borrowers, and may even reduce overall interest costs and shorten the repayment period in some cases, it’s crucial to talk with a financial advisor or seasoned loan officer to understand just how a first-lien HELOC could impact your finances.

Is a First-Lien HELOC Right for You?

A first-lien HELOC can let you borrow against your home’s equity without requiring you to carry multiple mortgages. Due to their first-lien position, these HELOCs tend to have lower interest costs than the traditional second-position alternatives.

However, because of their variable rates, first-lien HELOCs can result in higher monthly payments if market rates rise, especially when entering into the loan repayment period. Because they’re a more complex financial product, some homeowners may prefer the simplicity of a traditional fixed-payment mortgage.

Plus, not all lenders offer first-lien HELOCs – Refi.com does not. But if you’re interested in finding out how much you can borrow against your home’s equity with a second-lien HELOC, home equity loan, or cash-out refinance, apply with Refi.com today.