Home Equity Line of Credit Counts as Second Mortgage
REM #F822
By Ilyce R. Glink
Summary: A ThinkGlink reader asks whether his home owners insurance was correct to count a home equity line of credit as a second mortgage. Having a second mortgage scares the reader because his first mortgage is relatively low. Ilyce explains that the insurance is correct to count the HELOC as a second mortgage because the HELOC issuer has a lien on the home.
Q: I recently took out a home equity line of credit (HELOC) with a national mortgage bank. I was approved for a $25,000 line of credit but only have a balance of $3,750.
Now the HELOC is listed as a "2nd mortgage" on my home according to my home owners insurance. That scares me as I only owe $55,000 on my house.
Does the HELOC really have to be listed as "2nd mortgage" on my account?
A: Yes. A home equity line of credit (HELOC) is a loan that uses the property as collateral. The lender correctly took out a lien against the property, and is listed as the second mortgage holder, meaning that if you default against both of your loans, the primary mortgage lender gets first dibs on any equity. Once the primary mortgage lender is paid off, the second mortgage lender gets to dip into the equity generated by a sale to get paid.
I'm sure your loan specifies this. Please read your loan documents and be sure you understand them.
NOTE: Ilyce R. Glink's latest ebooks are "The Clutter Collector: How to Get Rid of Clutter Everywhere in Your Home" and "How to Save $50 a Month," which are available at her new, all-video website, www.expertrealestatetips.net. If you have questions, you can call her radio show toll-free (800-972-8255) any Sunday, from 11a-1p EST. You can also write to Real Estate Matters Syndicate, PO Box 366, Glencoe, IL 60022 or contact her through her website, www.thinkglink.com. ©2008 by Ilyce R. Glink. Distributed by Tribune Media Services.
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