First-Lien HELOC

What Is a First-Lien HELOC?

A first-lien HELOC is a type of home equity line of credit that takes a first position lien on your home. That means it replaces your existing mortgage instead of sitting behind it like a traditional HELOC. A first position HELOC acts as both your mortgage and a revolving credit line you can borrow from over time.

The main difference between a first-lien HELOC and a second-lien HELOC is priority. A second-lien HELOC sits behind your primary mortgage, which often means higher rates and stricter terms. With a first-lien HELOC, the lender has the first claim on your home if you default, which lowers their risk and usually results in better terms for you.

This kind of financing is ideal for homeowners with significant equity who want to combine flexibility with potential savings on interest payments. 

How Does a First-Lien HELOC Work?

A first-lien HELOC works much like a traditional HELOC but with some key differences. When you open one of these loans, your current mortgage is replaced with a revolving credit line. You can draw from it, pay it down, and reuse it. 

A first position HELOC has two main phases: a draw period, where you can access funds as needed, and a repayment period, where you pay off the remaining balance. Many HELOC first position loans allow interest-only payments during the draw period, offering even more short-term cash flow flexibility. 

Since it’s your primary mortgage, you’ll typically see more favorable terms compared to second-lien loans, especially if your credit and income are solid. In many cases, first-lien HELOC rates are lower than second-lien rates and can adjust over time based on market conditions. 

Some lenders now offer fixed-rate HELOC options, too, which lock in your interest rate while keeping the credit line format. 

Wondering if you qualify for this type of loan? It’s always a good idea to learn about HELOC requirements before you apply with a lender. 

Pros and Cons of First-Lien HELOCs

Before choosing a 1st lien HELOC, take time to consider the potential benefits and disadvantages in light of your financial goals.

Pros of a first-lien HELOC include: 

• Lower interest rates: First-lien HELOCs usually offer lower rates than second-lien options because they’re less risky for lenders. 
• Flexible access to equity: Borrow what you need, when you need it, and repay as you go. These loans give you more control over your cash flow. 
• Potential interest savings: Because you only pay interest on the amount you use, you could save money over time compared to a lump-sum loan. 
• Debt consolidation: You can replace a high-interest mortgage or consolidate credit card debt into one manageable, low-rate payment. 
• Accessible for strong equity positions: If you have a lot of home equity and solid financials, you may qualify more easily than with a second-lien loan. 

Cons of first-lien HELOCs are: 

• Replaces your mortgage: When you take out a first-lien HELOC, you give up your existing mortgage terms, which could be a downside if you have a low fixed rate now. 
• Variable interest rates: Many first-lien HELOCs have variable rates, which can rise over time and increase your monthly payment. To avoid this, ask your lender if they offer a fixed-rate HELOC. 
• May require stronger financials: Qualifying for a first-lien HELOC can be harder if your income or credit profile isn’t strong. 
• Risk of foreclosure: Because this loan is a first lien on your property, failure to pay back your loan could put your home at greater risk than unsecured loans. 

First-Lien HELOC Alternatives

A first-lien HELOC can be a great option if you want flexibility, access to revolving credit, and the ability to manage your mortgage and borrowing in one place, but it’s not the only option. If you’re unsure whether this is the right fit, there are a few alternatives you might consider instead:

• Cash-out refinance: This loan replaces your mortgage with a new, larger loan and gives you the difference in cash. It’s a one-time lump sum and can offer fixed rates, but it comes with closing costs and resets your loan term. A cash-out refinance works well if you’re already looking to refinance your mortgage and want extra cash for big expenses like renovations or sending your child off to college. 
• Home equity loan: This option lets you borrow a one-time lump sum that you’ll repay over time at a fixed interest rate. A home equity loan is a good option if you prefer predictable monthly payments. Because it’s a separate loan from your mortgage, you’ll make two payments each month — one for your mortgage and one for the home equity loan. For more help comparing options, check out the pros and cons of home equity loans.
• Reverse mortgage: This option is only available for homeowners at least 62 years old, allowing them to convert equity into tax-free cash without repaying the loan monthly. Instead, you or your loved ones will repay when you sell your home or pass away. It can be a useful way to supplement retirement income, but it also reduces the equity left in your home over time. 
• Personal loan: A personal loan is unsecured and doesn’t use your home as collateral. However, they usually come with higher interest rates. Additionally, while personal loans can be easier to qualify for, borrowing limits are typically lower than equity-based loans. 
• Selling your home: If you can’t afford the additional payments that come with a first-lien HELOC, then it may make sense to consider downsizing to another home.

Apply for a First-Lien HELOC Today

Tap into your home equity with more freedom and better rates. A first-lien HELOC from Griffin Funding can help you consolidate debt, upgrade your home, or simply give yourself peace of mind with access to funds. 

Get started quickly with the Griffin Gold app and see what you qualify for. Griffin Funding offers several flexible products, including home equity lines of credit and competitive first-lien HELOC rates. Our mortgage professionals will walk you through every step, so you’ll never go through the process alone.

Get started online today and see if a first-lien HELOC is right for you.