A second mortgage or junior-lien is a loan you take out using your house as collateral while you still have another loan secured by your house. Home equity loans and home equity lines of credit (HELOCs) are common examples of second mortgages.
A first-lien HELOC merges a first mortgage with a variable-rate credit line, becoming the primary loan for the property. This type of HELOC can function as a cash flow management tool, automatically applying funds towards the HELOC balance every time income is deposited.
A home equity loan allows you to use the equity that you've built in your home as collateral to borrow a lump sum of cash. The loan is secured by the property in the form of a lien, meaning that the lender has permission to foreclose on your home if you fail to keep up with repayments.
Second-line treatment is treatment for a disease or condition after the initial treatment (first-line treatment) has failed, stopped working, or has side effects that aren't tolerated. It's important to understand "lines of treatment" and how they differ from first line treatment and can play a role in clinical trials.
First-lien creditors have a priority claim on assets, while second-lien creditors have a second claim. The priority claim on assets only relates to the disbursement of proceeds when liquidating assets in a bankruptcy.
Second-lien debt also comes with more risk, and it ranks lower than other high-risk loans should a business file for bankruptcy or go through liquidation. These subordinated loans might yield insufficient collateral in the event of a bankruptcy.
A home equity line of credit, also known as a HELOC, is a line of credit secured by your home that gives you a revolving credit line to use for large expenses or to consolidate higher-interest rate debt on other loans such as credit cards.
The basics of paying off your HELOC account
If you want to have the lien released you must request a payoff quote and close your account providing us with an authorization to close form to an authorization to close form or you can call and provide authorization to close over phone at 1-800-836-5656.
Through subordination, lenders assign a “lien position” to these loans. Generally, your mortgage is assigned the first lien position while your HELOC becomes the second lien.
Potential Tax Benefits
Interest paid on a first lien HELOC may be tax-deductible if used for home improvements, though it's best to consult a tax professional for guidance.
Lien considerations
It's not uncommon for homeowners to have multiple home equity products tied to a single property. However, most HELOC lenders will not take a third-position lien on your property. This simply means you may have to pay off any other debts tied to your home with your HELOC funds.
Yes, you can get a HELOC and not use the funds. However, getting a HELOC and not use it will cost you time and money in lender fees and account fees that we'll discuss in detail below. If you do not intend to use the HELOC right away, you'll be paying money for a loan you don't really need.
Traditionally, people think of a HELOC as a second loan or lien on their homes, which sits “behind” their first mortgage. A First Lien HELOC Sweep combines your mortgage with your HELOC while also giving you access to up to 85% of your home's equity. There are no PMI or escrow requirements.
What is the monthly payment on a $50,000 HELOC? Assuming a borrower who has spent up to their HELOC credit limit, the monthly payment on a $50,000 HELOC at today's rates would be about $372 for an interest-only payment, or $448 for a principle-and-interest payment.
There is no particular limit to the number of liens that can be placed on a property. As long as a creditor has a valid claim to a debt and has either a statutory right (i.e. taxes) to place it or has obtained a judgment against a debtor, they can lien the property.
Because HELOCs are secondary to any primary mortgage on the property (what's called a “second-lien” position), the interest rates are higher than they would be for a comparable first-lien mortgage.
This means that HELOC liens will appear on your credit report, but there is no negative impact to your credit score, as long as you make your payments on time and fulfill the terms of the loan agreement.
If you decide to cancel, you must inform the lender in writing. You may not cancel by phone or in a face-to-face conversation with the lender. Mail or deliver your written notice before midnight of the third business day.
On the downside, HELOCs have variable interest rates, so your repayments will increase if rates rise. Another risk: A HELOC uses your home as collateral, so if you don't repay what you borrow, the lender could foreclose on it.
HELOC payment examples
For example, payments on a $100,000 HELOC with a 6% annual percentage rate (APR) may cost around $500 a month during a 10-year draw period when only interest payments are required. That jumps to approximately $1,110 a month when the 10-year repayment period begins.
You can pay off your HELOC early, but be mindful of pre-payment fees, if any. If you have a Citizens HELOC, you're in luck as Citizens does not charge pre-payment fees. HELOCs allow you to make interest-only payments during the draw period, then transition to principal and interest payments during the repayment period.
Second-lien debt refers to a form of borrowing that occurs after a first lien has been put into place. Second-lien debts are paid after the first or original first lienholder is paid off if the borrower defaults and suffers bankruptcy or asset liquidation.
The short answer is yes. Especially if it's voluntary: Selling a home with a mortgage on it, for example, is very common. That's because you'll (ideally) be able to use the proceeds from the sale to pay off your loan balance and satisfy that debt. The issues arise when it's an involuntary lien.
A silent second mortgage is a second mortgage placed on an asset (such as a home) for down payment funds that aren't disclosed to the original lender on the first mortgage.