How To Refinance a HELOC
There are a handful of ways to refinance a HELOC, and you can do so either before or after it enters its repayment period. We’ll go over how the HELOC refinance process works and how to choose the right refinance option for your situation.
And, if you aren’t likely to benefit from a refinance or can’t qualify for one, we’ll cover some good alternatives.
Can you refinance a HELOC?
Yes, it’s possible to refinance a home equity line of credit (HELOC) and it’s usually best to do so before the draw period ends. That’s because HELOC payments often rise sharply once the draw period ends and the repayment period begins — and, ideally, you want to refinance before your payments become unmanageable.
HELOCs come with two distinct phases:
- The first phase, called the draw period, is the fun part. During this time you can use your credit line to make as many purchases as you’d like, up to your credit limit. During the draw period, your minimum payments can be very low because you’re often allowed to make interest-only payments. The draw period usually lasts 10 years.
- The second phase is the repayment period, and once it begins you can no longer spend against the credit line. Instead, you must begin making full principal-and-interest payments. A HELOC repayment period often lasts about 20 years.
Reasons to refinance a HELOC
→ The most common reason homeowners want to refinance a HELOC is to lower their monthly payments. A HELOC refinance can achieve this by:
- Restarting the draw period: Since refinancing a HELOC puts you at the beginning of a brand-new draw period, it buys you more time before you begin repaying the loan with full principal-and-interest payments (or, in some cases, a balloon payment).
- Offering a lower interest rate: If HELOC rates have fallen since you first took out your credit line, a refinance can offer a lower rate and lower overall loan costs.
Other common reasons to refinance a HELOC include:
→ To lock in a fixed interest rate. If having a variable interest rate makes you nervous, it’s reasonable to trade in your HELOC for a different loan type with a fixed rate.
→ To access more cash. If your home has increased in value since you took out your HELOC, refinancing may allow you to qualify for a higher HELOC limit.
4 ways to refinance your HELOC
You have four options if you want to refinance your HELOC loan:
- Refinance into a new HELOC
- Refinance to a home equity loan
- Refinance your HELOC and mortgage
- Refinance by taking out a personal loan
1. Refinance into a new HELOC
How it works: You’ll take out a new HELOC loan and use the payout to pay off your old HELOC.
Benefits: Refinancing into a new HELOC can help you extend the time that you’ll enjoy low, interest-only payments. If your current HELOC is about to enter its repayment period, you can essentially restart the clock with a refinance. As an added bonus, refinancing into a new HELOC usually comes with lower upfront costs than other refinance options.
Drawbacks: Unless you make more than the minimum, interest-only payments during the draw period, you’re just kicking a can down the road. You’ll have to make principal and interest payments eventually, and if interest rates go up in the intervening time period, your monthly payments could also increase.
2. Refinance into a home equity loan
How it works: You’ll take out a home equity loan and use it to pay off your HELOC. Similar to a HELOC, a home equity loan uses the equity in your home as collateral against the loan balance.
Benefits: Home equity loans have a fixed interest rate, giving you a set payment for the entire loan term. And, since there isn’t a draw period, you’ll start paying off the principal and interest right away. This can protect you against the “payment shock” that’s common with HELOCs, which allow a large balance to accrue over several years while the borrower makes artificially low payments. The “shock” comes when your payments jump up sharply, suddenly becoming unaffordable.
Drawbacks: You’ll have to pay home equity closing costs and fees.
Not sure which option is best for you? Read our guide to choosing between HELOCs vs home equity loans.3. Refinance your HELOC and mortgage together
How it works: You’ll take out a new mortgage that’s large enough to cover both your outstanding first mortgage and HELOC balances. The new loan could be a cash-out refinance that provides enough money to pay off the HELOC.
Benefits: By refinancing your mortgage and HELOC into one new loan, you may be able to snag a lower fixed interest rate. Then, not only will you get to make only a single mortgage payment each month — rather than two — but it could end up being smaller than your monthly HELOC payment is now.
Drawbacks: If you have less than 20% home equity when you refinance, you may need private mortgage insurance (PMI), which adds an extra cost to your mortgage payments. PMI only applies to conventional loans, but other loan types have their own forms of mortgage insurance.
Want to compare these options in more detail? Check out our guide to cash-out refinances vs. HELOCs or home equity loans.4. Refinance using a personal loan
How it works: You’ll take out a personal loan that pays off your HELOC.
Benefits: You’re trading out debt that’s tied to your home equity for new debt that doesn’t put your home at risk. In the worst-case scenario, defaulting on a personal loan means damage to your credit score and a potential lawsuit — but it won’t mean losing your home.
Drawbacks: Mortgage interest rates are typically cheaper than personal loan rates, so you may end up with higher payments or pay more total interest.
Learn more about personal loan requirements.HELOC refinance rates
HELOC rates are typically a little lower than home equity loan rates, and slightly higher than cash-out refinance rates.
How to qualify to refinance your HELOC
When refinancing a HELOC, you must meet a lender’s requirements for approval. The requirements vary depending on the loan type, as well as each lender. Here are some basic guidelines:
| Loan type | Minimum credit score | Maximum debt-to-income (DTI) ratio | Maximum loan-to-value (LTV) ratio |
|---|---|---|---|
| HELOC | 620 | 43% | 85% |
| Home equity loan | 620 | 43% | 85% |
| Conventional cash-out refinance | 620 | 45% to 50% | 80% |
| FHA cash-out refinance | 500 | 43% | 80% |
| VA cash-out refinance | 620 | 41% | 90% |
| Personal loan | 580 | 35% | N/A |
No matter which loan type you choose, as you’re preparing your loan application you’ll likely need to submit the following documentation to your lender:
- Your personal information, along with that of any co-applicant
- Employment and income information
- Mortgage details, including your monthly HELOC payment amount and remaining balance
- Property information, including details on your home, property taxes and home insurance premiums
- Information on all outstanding debts
Learn more about HELOC requirements.
Will I need a new home appraisal?
Pros and cons of refinancing a HELOC
| Pros | Cons |
|---|---|
| Lower payments. Refinancing can get you a better rate or spread out your current balance, both of which result in lower monthly payments. An extended draw period. By restarting the clock, a HELOC refinance essentially lets you extend your draw period. Lower overall interest costs. If you refinance into a lower-rate loan, you can save thousands in interest over the life of your loan. | Fees and penalties. Some lenders charge you a fee if you pay off your HELOC early, which includes paying it off with a refinance. Higher interest costs. Your refinance will be more expensive in the long run than paying off your HELOC now. This is because you’ll be financing your entire HELOC — interest and all — and paying new interest on the whole thing. Loss of tax-deductible interest. You won’t be able to deduct the interest paid on your HELOC from your taxes. That’s because the interest is only deductible if you use HELOC funds to "buy, build or substantially improve" the home securing the loan, according to the IRS. |
Think a refinance is right for you? Get Rates from Top LendersAlternatives to refinancing a HELOC
Modify your current HELOC
Your lender may be willing to modify your current HELOC terms. Explain why you want a loan modification and see if your lender can reduce your rate, extend your repayment term or even reduce your principal balance.
You can also look into converting your variable-rate HELOC into a fixed-rate HELOC, which means you’ll have set payments that won’t fluctuate over time. Not all lenders offer this option, but it can’t hurt to ask.
Look for an assistance program
If you’re unable to make your HELOC payments, you may want to look for assistance programs that can help. The U.S. Department of Housing and Urban Development (HUD) has several programs designed to help borrowers avoid foreclosure. To find out more, you can call the HOPE™ Hotline at 888-995-4673 and speak with a HUD-approved housing counselor.
Frequently asked questions
Yes, in some cases. Not all lenders offer a fixed-rate HELOC option, but those that do can help you refinance or convert your current HELOC — or, in some cases, part of it — into a fixed rate.
Yes, you can choose a different lender for your HELOC refinance; you don’t have to go with your current lender. If you’re looking for a new lender, check out our list of the best HELOC lenders.
A HELOC can be a refinance if you use it to pay off another loan. Strictly speaking, a refinance loan is usually a loan that pays off a different loan directly — that is, the lender takes care of closing out the original loan, without you handling the money. But, colloquially, it’s common for any loan that replaces another loan to be called a refinance.
Yes, you can refinance a HELOC into a mortgage using a cash-out refinance. You’ll need to qualify for a loan balance high enough to cover both your outstanding first mortgage balance and your outstanding HELOC balance.
To check whether you can qualify for that amount, you can use LendingTree’s home equity loan and HELOC calculator. For best results, you’ll need to know your home’s current value, how much you owe on your first mortgage and your credit score.
Yes, you can use a new HELOC to pay off an old HELOC — in essence, this is just refinancing the original loan.