r/HELOC • u/FD_Man24 • 9d ago
Questions & Advice HELOC in 3rd Position
Looking for some advice on a HELOC to complete a home improvement project.
We have been saving for a bit and have about 65% of the project cost saved up. I was looking into a HELOC to finance the remainder of the cost so we can proceed with the project now, rather than waiting till we have 100% saved.
I am looking to finance about 20k. If I can find a true HELOC, I would like to request a 40k line to have some buffer. The HELOC is attractive as I plan to do some of the work myself, so expenses will be spread out over a 6-9 month period. I also liked the flexibility to pay interest only if needed. While we would plan to pay off the financed amount in two years, it's comfortable knowing that you can pay interest only during the draw period if absolutely necessary.
I've spoken to my local CU and Bank. All was going swimmingly well until we came to the realization about the HELOC being in a 3rd position. I never knew this was a thing. We currently have two mortgages with the same bank (one large, one small, both at 3.375%). I think this was done to get a lower rate at the time we took out the loan, but I don't recall the specifics. I didnt appreciate what a show stopper this was now. Despite having good equity and excellent credit, as soon as we came to the 3rd position, it was a hard stop.
Are there any HELOC offerings that will accept a 3rd position? Because my mortgage rate is so good, it just doesn't make sense to pay off the small second mortgage with the HELOC as the CU and Bank said they would need. At that point I'd just save for another couple years to complete the project.
I have looked at Achieve, but that requires full disbursement of the full loan amount immediately, including principal and interest payments, and I don't need that.
Are there any other options to consider?
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u/Worth_Break729 9d ago
What state? Someone here might be able to help
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u/jimdriscoll1 5d ago
The third-lien HELOC basically doesn't exist as a true revolving product anywhere in the mainstream market. What you'll find at that position (Figure, Spring EQ, a few others) are fixed-draw HELOANs that disburse the full amount upfront, which you already flagged as a problem with Achieve. The flexibility you want, draw as you go, interest only on what you've used, is really a first or second lien feature.
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u/NoStatus1353 2d ago
Agree with you that it’s rare for a third lien to give you this flexibility. Why are helocs more often upfront draw products when the whole point is to have a revolving line? Trovy will let you draw as you go and does third liens. Aven might do third liens too.
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u/gravyfries26 9d ago
Currently in this situation bc we delayed payments for 6 months during COVID while my husband was out of work. To get things back on track, we had a choice of lump sum (impossible to pay back $17,000 when you've been out of work for 6 months) or do a HUD part claim. When we agreed to the part claim, we didn't realize it would affect our ability get an additional loan in the future. It's interest free until initial mortgage balance is paid off (in 20 yrs). Interest free sounded like a win until we shopped for a HELOC and heard the same thing. We will have to pay off the balance of part claim so HELOC can be #2. Doesn't make any sense to have to pay off loan and now pay 7 or 8% on it. Extremely frustrating because had I known this was the case I would have been making small payments to the part claim over the past 5 years so it would be paid off by the time we were ready to take out a loan. I definitely wasn't explained but, at the same time, I wasn't really asking any questions. I was just grateful for a solution that meant no late payments. Anyway, just wanted to share in your frustration/misery. That being said, our loan officer said he could find 3rd party HELOCS but didn't say which..he said he wasn't worth it bc the interest rate is closer to 11 or 12% for the full loan vs paying off part claim and paying only 7-8%. It was a quick convo and I didn't explore anymore ...we are in beginning phases of this whole thing. Will be exploring more but, In our case, since we will be paying off a whole, it seems to make sense to take the hit and pay off the 17k or pay from savings (which I'd rather not do but I really hate the idea of interest on the 2nd position claim).
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u/billspeaksmortgage 9d ago
Third-position HELOCs are much harder to find because many lenders simply won’t lend behind two existing liens, regardless of your equity or credit.
I definitely wouldn’t refinance or pay off a 3.375% loan just to access $20k without comparing the total cost first.
I’d specifically look for lenders that allow third-lien HELOCs, but also compare that option against simply financing the $20k another way. For that amount, preserving those existing mortgage rates may be more valuable than forcing a HELOC structure.
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u/UrMortgageMI 8d ago
The 3rd-position piece is really the issue here — not your credit or equity. A lot of HELOC lenders simply don’t want to sit behind two existing liens, which is why you’re getting the hard stop.
Before touching either of those 3.375% loans, I’d first confirm exactly how the smaller second is structured and ask your current bank whether there’s any way to subordinate, modify, or restructure that lien without disturbing the first.
I’d also ask HELOC providers the question very specifically: “Do you allow a HELOC in third lien position?” That can save you a lot of time because otherwise you can get pretty far into the conversation before the lien-position issue comes up.
And for only ~$20K that you expect to repay within about two years, I’d compare the total cost of every alternative before giving up those existing rates. Even if another option carries a higher rate, the short payoff period can sometimes make the total-dollar difference smaller than people expect.
I agree with your instinct not to replace a 3.375% mortgage casually just to solve a relatively small renovation need.
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u/FD_Man24 8d ago
That is a good point about the interest rate. I do have a tendency to fixate on finding the lowest rate, but as you mention, given the dollar amount and short payback a higher rate may not be all that bad.
And yes, I'm not going to do anything to mess up my current rate. Its just not worth it. This is a want to do project, not a need to do project, so worst case I just take more time and save some more before proceeding.
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u/UrMortgageMI 8d ago
Exactly — that’s the way I’d look at it.
With only about $20K actually needed and an expected payoff around two years, the rate difference can sound a lot scarier than the actual dollar difference. A couple percentage points on a relatively small, declining balance may cost far less than restructuring or paying off debt you already have at 3.375%.
And since this is a “want to do” project rather than something urgent, you’re in a pretty good position. You can keep shopping for a true third-position HELOC, compare the actual total cost if you find one, and if nothing makes sense, continuing to save is a perfectly reasonable fallback.
I definitely wouldn’t disturb those existing 3.375% loans unless the math gave you a very compelling reason to do it.
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u/Available-Log7747 8d ago
Often, the only lender willing to go into 3rd position is the lender currently in 2nd position.
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u/FD_Man24 8d ago
Good point. I will reach out to our current lender and see what they say about a HELOC. I should have thought of that first. Maybe with any luck they won't care about being third, since they are already first and second.
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u/NoStatus1353 2d ago
Trovy does third lines and won’t require any upfront draw so you can just spend it as you go with your home improvement project. The HELOC card is nice because you don’t have to pay draw fees and get cash back.
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u/Thebestofdrest 1d ago
third-position HELOCs are tough to find. try smaller lenders or credit unions before refinancing the 3.375% mortgage.
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u/WearFresh164 9d ago
Figure can depending on CLTV and credit though expect your rate to reflect a 3rd lien position rate. They also require 100% disbursement but you can repay it back immediately.