Lenders are paid back in line when a house is sold or foreclosed. The loan that was recorded first is in first position and gets paid first. A home equity line of credit, or HELOC, that sits behind an existing mortgage is in second position. A HELOC on a house with no mortgage is in first position. Lenders typically only offer first and second.

Why does this matter for Dynamic Banking? Because it decides how much of your debt carries a floating rate. I explained why I prefer second position in a video on first and second position HELOCs.

Here's the math with round numbers. You owe $230,000 on the house. Option one keeps a $200,000 fixed mortgage at 3.5% and adds a $30,000 HELOC at 6%. If the balances stayed put for a year, interest would be $7,000 plus $1,800, or $8,800. Option two puts the whole $230,000 on a first-position HELOC at 6%. That's $13,800 a year, or $5,000 more. These were the kinds of rates around when I recorded the video, so rerun the numbers with the rates you can get right now.

The second-position setup wins for a reason. Most of your debt stays at the low fixed rate, and only a small working balance sits on the HELOC. In Dynamic Banking your pay lands on that balance every month, so it shrinks. That's why I'm not picky about the HELOC rate when my first mortgage is low. Its rate matters on a small number that's falling, and the mortgage rate matters on a big one that isn't.

There's risk in the floating rate, so size it. If rates climb two points, a $30,000 HELOC balance costs $600 more a year. A $230,000 first-position balance costs $4,600 more. The split matters for that reason, and stress-testing your rate shows how to check it.

First position has limits. When I made the video, HELOCs in first position often topped out around $100,000 to $150,000, and their rates ran above a regular fixed mortgage. If your house is worth $300,000, that leaves equity you can't reach. A regular mortgage up to 80% of the home's value avoids private mortgage insurance, and a second-position HELOC can reach equity beyond that. Some lenders will go to 90% or higher combined, usually at a higher rate.

There's also the all-in-one mortgage, which is a first-position line of credit that holds your whole mortgage balance and works like a HELOC. When I recorded the video I knew of only one U.S. lender offering it, and someone I know waited about six months to close. It carries the usual mortgage fees and a higher rate than a regular mortgage. Australia's offset account works on a similar idea.

Replacing a good mortgage with a line of credit is a big step, and the first-lien HELOC covers what you give up when you do. I'm a licensed insurance broker, not a mortgage lender or a CPA, so confirm terms with a lender.

Pull your mortgage statement, write down the rate and the balance, and multiply them to see how much interest the fixed loan would cost you in the next 12 months.