Editor’s note: At this time, Quicken Loans no longer offers home-equity lines of credit (HELOCs).

To understand what benefits a “first-lien HELOC” offers, it’s important to know first what it is. A first-lien HELOC is basically a home equity line of credit (HELOC) in the first lien (or first mortgage) position. Confused? Let us explain.

Normally, a home equity line of credit is considered a second mortgage. And you can’t have a second mortgage without a first. So, let’s say you have a home worth $100,000 that you obtained with a traditional first mortgage. You’ve paid off $75,000 of the principal on that mortgage and you owe $25,000 (in principal). If you got a home equity line of credit, you could use the money you get from the HELOC to pay off the first mortgage. You no longer have a first mortgage, so the HELOC then becomes your first lien.

When you make a mortgage payment, you’re paying two basic things: principal and interest. Principal is the amount you borrowed in the first place and the interest is the fee charged by the lender for borrowing the money. There is an inverse relationship between how much interest you pay to how much principal you pay toward your mortgage. In the beginning of your loan term, your mortgage payment is mostly interest and very little principal. As the loan term progresses, you pay increasingly less interest and more principal until toward the end of your loan term when your mortgage payment is mostly principal and very little interest.

Why Get a First-Lien HELOC?

Understanding all that, a first-lien HELOC can be very useful.

Let’s say you have a traditional 30-year fixed-rate mortgage that you’ve been paying faithfully for 25 years. You may know by now that mortgage interest is usually tax-deductible*. But now you’re in the later stages of your mortgage where you’re paying very little mortgage interest, as we just explained. So trying to deduct the interest from your taxes isn’t offering any real benefits at this point. If you were to get a home equity line of credit, you could use the HELOC to pay off your 30-year fixed and the HELOC becomes your first mortgage, or first lien. Now you’re at the beginning with your new mortgage and you can deduct more mortgage interest again.

Of course, you could also get a first-lien HELOC if you’ve paid off your house and own it outright.

Either way, now you have a mortgage that works like a credit card in that you can draw from the account at any time and pay it back if and when you draw. Having this kind of flexibility can come in handy if you need to draw from it to make ongoing home improvements and have to pay several contractors; if you have a child who’s getting ready for college and you need to pay their tuition and other college expenses; or if you are thinking about buying that fishing boat you’ve always wanted and have to make payments on that.

Remember, it’s better to pay for these sorts of big expenses with the money from your home equity line rather than with your credit card because you get a better interest rate on the money you borrow and the interest on your mortgage is usually tax-deductible whereas the interest on your credit card is not. Plus, HELOCs are tied to short-term adjustable rates which are usually lower than long-term fixed rates, so you could be getting a very good rate on a first-lien HELOC.

First-lien HELOCs provide homeowners with flexibility, liquidity, great tax advantages and a low interest rate. While we don’t offer home-equity lines at this time, we can help you take a look at a cash-out refinance, accomplishing similar benefits.

*Please check with your tax advisor.

Related Posts

This Post Has 19 Comments

  1. Hello to all,
    If anybody can suggest a HELOC as a first lien in Colorado Please post it.
    QL. Sorry dont need an ARM or to REFI don’t need a fixed either I’m at 3.75% and don’t want to pay all the inflated closing costs, discount points, appraisal fee, origination fee ,VA funding fee, pmi, mod fee, cash out fee along with what ever else I missed and you will tell me the above costs can be reduced or waived only to hide them in the APR.
    Just looking for a HELOC as a 1st lien interest only tied to the LIBOR not prime with a 20 year draw OK, 15 year. Variable might be good with a cap with an acct or routing #.
    prefer a credit union.. I know I’m dreaming, But why not?

    1. Hi lc:

      Just hang on with me for a second. In your situation, I’m going to do something a little bit different. I think I might surprise you.

      I wish you luck finding a first-lien HELOC. As I’m sure you’re aware, hardly anyone does them anymore. That being said, I’m not going to pitch you on doing anything with your mortgage. In fact, depending on what your term is, you’re not going to find a rate better than 3.75% in many cases. You’re in really good shape as far as your home financing is concerned.

      One thing you might take a look at to free up some cash is a personal loan from our friends at Rocket Loans. It’s not a 20-year loan, but it might work for you. It would give you some flexibility.

      Thanks,
      Kevin Graham

    2. Hello
      Im also looking for HELOC as a first lien that follows the LIBOR.
      Have you had any luck.
      Any information would be greatly appreciated.

      1. Hi Mandel:

        I’m here to help with dreams, not kill them. I’m going to get this over to my friends at RocketLoans so they can look into your situation and see if there’s anything we can help you with.

        Thanks,
        Kevin

  2. I’ve paid off my house loan, no mortgage on my house, can I get a small amount of HELOC $300K for my 1 million (estimated) house.
    I also want to get a no-income check application, just pledge my house as a collateral, can any bank accept such application?

    1. Hi Choon:

      We don’t do HELOCs. We offer cash-out refinances. That being said, I think you’re going to have a very hard time finding a lender that will do a loan without an income check. If you’re interested in taking cash out, we can look at your options through Rocket Mortgage or you can give one of our Home Loan Experts a call at (888) 980-6716. However, you should know we would be taking a look at your income, assets and credit. We have very strict guidelines that we follow to make sure we’re giving you a loan that you can handle.

      Thanks,
      Kevin Graham

  3. Funny how this article talks about HELOC’s.. then in the very last sentence refers to a company that doesn’t do HELOC’s lol. I talked to quicken loans a week ago about HELOCs and it was pretty much 10 minutes of them desperatly trying to convince me that a HELOC isn’t what I want.. but instead sell me a cash-out refi. I finally had to hang up on these idiots. They just want you to refi… keep you in interest slavery. Lame. I can’t wait to pay my house off early using a HELOC and be done with these banks once and for all.

    1. Hi Kevin:

      While we don’t do HELOCs, we do want our clients to be educated on their possible loan options. While a cash-out refinance may not have been right for you, many of our clients find it accomplishes the goals of a HELOC and works well for them.

      Thanks,
      Kevin Graham

    2. Any idea where I can get a first lien HELOC. I’m buying a new house for $500k and putting $100k down, I want to borrow $400k on a HELOC and am not having any luck in doing so. Any help would be greatly appreciated.

      1. Hi Andy:

        I’m sorry I can’t recommend any other lenders. That being said, the reason you’re having a hard time finding this is because it’s not a very common way to do a purchase, at least not anymore. I suspect you’re going to have a very hard time finding anyone that does this. We can help you with a regular purchase preapproval if you want. You can get started through Rocket Mortgage. If you want a HELOC because of the rate, one thing you could take a look at that might accomplish a similar effect is an ARM. Hope this helps!

        Thanks,
        Kevin Graham

    1. Hi Carl:

      We don’t do HELOCs, but we could help you with a cash-out refinance if that makes sense for your situation. You can get a full approval online through Rocket Mortgage or give one of our Home Loan Experts a call at (888) 980-6716. Hope this helps!

      Thanks,
      Kevin Graham

  4. Shame on Quicken Loans for not only not offering First Lien HELOC’s anymore, but then a week later calling back to offer a rip off reverse mortgage instead.

  5. Greetings from Colorado! I’m bored at work so I decided to browse your website on my iphone during lunch break. I really like the knowledge you present here and can’t wait to take a look when I get home. I’m surprised at how quick your blog loaded on my phone .. I’m not even using WIFI, just 3G .. Anyways, very good site!|

Leave a Reply

Your email address will not be published. Required fields are marked *