HELOC Subordination: What It Is and Why You Need It to Refinance

You found a great refinance rate. You're ready to close. Then your mortgage broker drops this bomb: "We need your HELOC lender to sign a subordination agreement."

Wait, what?

If you have a HELOC and want to refinance your primary mortgage, you'll need to understand subordination. Skip this step and your refinance can stall for weeks—or fall apart entirely.

What Is HELOC Subordination?

Subordination means keeping your HELOC in second lien position after you refinance your primary mortgage.

Here's the background: Mortgages are recorded in order. When you bought your home, your mortgage became the first lien. When you later opened a HELOC, it became the second lien.

When you refinance, you're paying off the old first mortgage and replacing it with a new one. Without subordination, your HELOC would automatically jump to first position (since the original first mortgage is gone). Your new mortgage would be stuck in second.

Lenders don't like second position. So your new lender requires your HELOC lender to "subordinate"—agree to stay in second place behind the new mortgage.

Why Lenders Care About Lien Position

In a foreclosure, liens get paid in order:

1. First lien gets paid first (fully)
2. Second lien gets what's left (if anything)

Being in first position means your loan is more secure. Second position means more risk.

That's why:

• Your refinance lender requires first position
• Your HELOC lender might be reluctant to subordinate (they're accepting more risk)

The Subordination Process Step-by-Step

Step 1: Request Subordination

Contact your HELOC lender early—ideally when you start your refinance, not weeks into it.

Most lenders have a subordination department. You'll need to submit:

• Subordination request form
• New loan details (amount, rate, terms)
• Recent property appraisal
• Current mortgage statements

Step 2: Wait for Review

The HELOC lender reviews your request. They're checking:

Combined Loan-to-Value (CLTV): Will your new mortgage + HELOC exceed their comfort level? Most want CLTV under 80-90%.

Your payment history: Have you been making on-time payments?

New loan terms: Does the new mortgage significantly increase your debt?

Step 3: Pay the Fee

Subordination fees typically run $100-500, depending on the lender.

Common subordination fees:

This fee goes to your HELOC lender—not your refinance lender.

Step 4: Receive Approval

If approved, your HELOC lender issues a subordination agreement. This legal document says they agree to remain in second position behind your new mortgage.

Step 5: Close Your Refinance

The subordination agreement gets recorded with your new mortgage. Your refinance closes. Your HELOC stays in second position.

Timeline: How Long Does Subordination Take?

Plan for 2-6 weeks from request to approval.

Pro tip: Submit your subordination request the same day you lock your refinance rate. Don't wait until the last minute.

What Can Go Wrong

CLTV Too High

If your new mortgage + HELOC + refinance costs push your combined loan-to-value above the lender's limit, they may deny subordination.

Example: Your home is worth $500K. New mortgage is $400K. HELOC balance is $80K. That's 96% CLTV—too high for most lenders who cap at 80-90%.

HELOC Lender Requires Appraisal

Some HELOC lenders want their own appraisal or appraisal review before subordinating. This adds time and sometimes costs ($300-500 for a full appraisal).

Processing Delays

Subordination departments are often understaffed. Requests can sit in queues. Follow up weekly.

Outright Denial

Some HELOC lenders won't subordinate if:

• Your CLTV exceeds their threshold
• You've missed payments
• The new loan terms are unfavorable

If Subordination Is Denied

Don't panic. You have options:

Pay Down Your HELOC

If CLTV is the issue, paying down your HELOC balance might get you under the threshold.

Example: HELOC lender requires 85% CLTV max. You're at 90%. Paying down $25K of your HELOC might get you approved.

Close the HELOC

If you don't need the HELOC anymore, closing it eliminates the subordination problem entirely. You can always open a new HELOC after your refinance closes.

Consolidate Into Your Refinance

Roll your HELOC balance into a cash-out refinance. Now there's only one loan—no subordination needed.

Try a Different Refinance Lender

Some refinance lenders are more flexible about CLTV limits. If one lender won't work with your situation, another might.

Frequently Asked Questions

Do all HELOC lenders subordinate?

Most will, but not all. And they all have different requirements and timelines. Ask upfront before refinancing.

Can I refinance without subordination?

Only if you pay off the HELOC as part of your refinance (cash-out refi) or close it beforehand.

Who pays the subordination fee?

You do—the borrower. It's not part of your refinance closing costs; it goes directly to your HELOC lender.

Does subordination affect my HELOC terms?

No. Your HELOC rate, credit limit, and terms stay the same. Subordination only changes the lien position.

What if my HELOC is with the same bank as my mortgage?

Same-bank subordination is usually faster and sometimes free. But you still need to go through the process.

The Bottom Line

HELOC subordination is a speed bump, not a roadblock. If you're refinancing and have a HELOC, here's your game plan:

1. Start early. Request subordination when you begin your refinance.
2. Budget 2-6 weeks. Don't let subordination delay expire your rate lock.
3. Budget $100-500. The subordination fee is on you.
4. Check your CLTV. If it's borderline, pay down your HELOC before requesting.
5. Follow up weekly. Subordination departments are slow. Be persistent.

---

Planning a refinance? Talk to HonestCasa about coordinating your HELOC and new mortgage for a smooth process.