Most people who own their own homes have a mortgage. Many people also have a second mortgage. A second mortgage also is secured by the home as collateral. However, the first mortgage must be paid in full before any proceeds may be directed to the second mortgage. A HELOC is one of the types of second mortgages.
What Is a HELOC?
A HELOC is a home equity line of credit. Similar to a home equity loan, a HELOC is a second mortgage secured by the real estate as collateral. Unlike a home equity loan, a HELOC is a line of credit that may be used in part or in total. Furthermore, a HELOC may be repaid and then reused as long as the line is open. HELOCs typically have variable interest rates.
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Third Mortgages and Beyond
Although first and second mortgages are the most common, there can, theoretically, be three or more mortgages on the same piece of property. Third mortgages are rare, and there are few lenders who offer them. Third mortgages may be offered to valued customers with substantial equity in their homes.
Two HELOCs, One Property
Most lenders will insist on their loan being the second mortgage on the home, subordinated only to the first mortgage. Once that second position has been taken by a loan, it cannot be used again. Thus, in order to get another HELOC, that lender would have to allow the debt to be subordinated to both the first and second mortgage. Applying for two HELOCs from different lenders at the same time without informing the lenders is a type of mortgage fraud.
Alternatives to Multiple HELOCs
For most borrowers, having two HELOCs simultaneously is not feasible. However, if you qualify for a larger loan amount, most lenders will offer to refinance your existing HELOC as part of origination process. Borrowers with good credit and enough equity also can check with their current lender to see if they would increase the credit line on an existing HELOC.