How does a line of credit secured to my home affect closing?
Will a home line of credit kill your closing? Read this first and save your closing date.
What a secured line of credit means for closing
A line of credit secured to your home (HELOC or second mortgage) is a registered lien. Lenders and closing lawyers treat it like any other mortgage encumbrance. If it is not handled properly, it can delay or even derail a closing.
Key impacts on the closing process
- Registered lien blocks clear title: The lender holding the secured line appears on title and must be dealt with before ownership transfers.
- Payoff or subordination needed: You’ll either need a payoff/discharge or a subordination agreement allowing the new mortgage to take priority.
- Closing delays are common: Missing a payout statement or waiting for discharge documents can push your closing date.
- Affects refinance and new mortgages: Lenders calculate loan-to-value (LTV) and debt obligations using the secured line, which can change mortgage terms or approval.
What your lawyer and mortgage lender will ask for
- Recent payout statement showing exact amount to discharge the line of credit.
- Discharge or release document if the line is being closed.
- Subordination agreement if the line remains but will be secondary.
- Title search showing the lien and any other encumbrances.
Actionable steps to avoid delays (do these now)
- Request a current payout statement from your line-of-credit lender at least 10–15 business days before closing. That number is what lawyers use to prepare funds.
- Decide whether to pay off the line or have it subordinated. If you plan to keep it, request a written subordination agreement from the lender immediately. Not all lenders will subordinate.
- Communicate with your lawyer and mortgage broker. Share payoff numbers, lender contact info, and account details early.
- Confirm turnaround times. Some lenders take weeks to issue discharge paperwork. Build that into your schedule.
- Ask about title insurance conditions. Title companies often require the lien removed or a specific endorsement.
Common scenarios and solutions
- Selling your home: Most sellers pay out the line at closing from proceeds. Provide your lawyer with the payoff figure early.
- Refinancing: Your new lender will want the secured line cleared or subordinated. If subordination is refused, you may need to pay the LOC down.
- Buying with an existing HELOC: If you’re buying and taking responsibility for a home with a secured line, lenders will include that debt in your qualification.
Final word — simplify the closing
A secured line of credit adds paperwork, not mystery. Get a payout statement, confirm subordination or discharge, and coordinate with your lawyer and lender. Do this early and your closing will go smoothly.
For clear, no-nonsense help navigating liens and mortgages, contact local realtor and closing expert Tony Sousa. Email: tony@sousasells.ca • Call: 416-477-2620 • https://www.sousasells.ca
