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Refinancing your mortgage can be a strategic move—especially when interest rates drop. But if you have a Home Equity Line of Credit (HELOC), refinancing your first mortgage becomes more complex. That’s where HELOC subordination comes in. This process ensures your HELOC doesn’t block you from locking in a better rate on your first mortgage.
What Is HELOC Subordination?
HELOC subordination is a lender-approved process that allows your HELOC to remain in second lien position when you refinance your first mortgage. Lien position determines which lender gets paid first if the property is foreclosed. Without subordination, the HELOC could shift into first position—something your new mortgage lender won’t allow.
To refinance your first mortgage and retain your HELOC, the HELOC lender must agree to subordinate their lien—essentially, step aside and let the new mortgage take precedence.
Why HELOC Subordination Matters
When rates are low, refinancing a first mortgage can lead to significant savings over the life of your loan. But if you have an existing HELOC, it complicates the process. Without subordination, you’d be forced to:
- Pay off the HELOC entirely before refinancing
- Close the HELOC account, losing access to that credit line
Subordination avoids both of these scenarios. You get to keep your low-rate first mortgage and retain access to your HELOC.
How the Subordination Process Works
The process varies slightly between lenders, but typically includes the following steps:
- Submit a Subordination Request: Your current HELOC lender requires documentation from your new mortgage lender, including the loan estimate and appraisal.
- Lender Review: The HELOC lender evaluates your financials, the property’s value, and the terms of the new mortgage.
- Approval & Agreement: Once approved, the lender issues a subordination agreement, which is filed with the county recorder’s office.
Important: Not all lenders approve subordination requests. Each has unique criteria related to credit score, loan-to-value (LTV) ratios, and current account standing.
Tips to Increase Approval Chances
- Maintain Good Credit: Most lenders look for a minimum credit score of 680–700.
- Monitor LTV Ratios: A combined loan-to-value (CLTV) under 85% improves your chances.
- Stay Current: Make timely payments on both your first mortgage and HELOC.
- Gather Documentation: Be ready with tax returns, income statements, property appraisal, and a copy of your new mortgage terms.
Pros and Cons of Subordination
Pros
- Retain your existing HELOC
- Lock in a lower rate on your first mortgage
- Avoid closing or repaying your HELOC
Cons
- Lender may deny the request
- Adds time and paperwork to refinancing
- Potential appraisal or processing fees
FAQ: HELOC Subordination
Does subordination affect my HELOC terms?
No, your HELOC’s interest rate and credit line typically remain unchanged. Only its lien position is affected.
Can I apply for a new HELOC after refinancing?
Yes, but the new lender will need to approve it, and it will be in second position.
How long does the subordination process take?
Typically 2–3 weeks, but it can take longer depending on the HELOC lender’s process and documentation requirements.
Read Next:
- Using a Subordination Agreement for Mortgage Refinancing: Expert Guide
- Mortgage Insurance Explained: Types and Considerations
Unlock Your Home Equity with Figure
- Approval in 5 minutes. Funding in as few as 5 days
- Borrow $20K-$400K
- Consolidate debt or finance home projects
- Fastest way to turn home equity into cash
- 100% online application
Our advice is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.
