Home equity lines of credit, or HELOCs, offer a way to access credit at potentially lower interest rates compared to credit cards or personal loans. When you refinance a HELOC, you are essentially taking out a new loan to replace the one you currently have.
There are many reasons you might want to refinance your HELOC — among them to potentially lower your monthly payments — but refinancing also has downsides.
Taking out a home equity line of credit (HELOC) can be a great way to access funds for home renovations, debt consolidation, or other major expenses. HELOCs typically come with a 10-year draw period where you can access the funds as needed, followed by a 10-20 year repayment period where you must start making principal and interest payments.
While HELOCs offer flexibility and low interest rates during the draw period, the repayment period can bring payment shock as you transition to fully amortized payments. This is especially true if interest rates have risen significantly since you first opened your HELOC.
So what can you do if you have an existing HELOC and are worried about facing unaffordable payments down the road? Refinancing your HELOC into a new loan may allow you to reduce your interest rate or extend your repayment term to make monthly payments more manageable
Here’s what to know about refinancing a HELOC, including common refinancing options, eligibility requirements, and pros and cons of each approach
When Does Refinancing a HELOC Make Sense?
Refinancing a HELOC into a new loan generally makes the most sense if:
- Interest rates have dropped significantly since you opened your HELOC, allowing you to reduce your rate
- You want to consolidate HELOC debt into your primary mortgage to simplify payments
- You are nearing the end of your draw period and want to extend your repayment term to reduce monthly payments
- Your credit score has improved, making you eligible for better loan terms
- You took out your HELOC when rates were low and now want to lock in a fixed interest rate
On the other hand, refinancing may not make sense if you would incur high closing costs relative to the amount of interest savings, or if you plan to pay off your HELOC soon anyway. It’s best to run the numbers with a mortgage broker to see if refinancing achieves your goals cost-effectively.
What Are the Requirements to Refinance a HELOC?
To qualify for a HELOC refinance. you’ll generally need
- A credit score of at least 620, with scores of 740+ ideal for the best terms
- A debt-to-income ratio below 50%
- Sufficient equity in your home (at least 15-20% loan-to-value ratio)
- Stable income and employment history
As when taking out your original HELOC, the lender will review your credit report, income, assets, debts, and home value to ensure you meet their underwriting criteria.
You may need to provide documents such as bank statements, tax returns, pay stubs, and a home appraisal. Closing costs for a HELOC refinance, including appraisal fee, typically range from 2-5% of the loan amount.
What Are Your HELOC Refinancing Options?
You have several options when refinancing an existing HELOC:
1. Refinance into a new HELOC
You can open a new HELOC that gives you another 10-year draw period and interest-only payments. This delays having to pay down principal for another decade.
Pros: Provides short-term payment relief, flexibility to access more funds as needed
Cons: Accumulates more interest over time, balances continue growing
2. Refinance into a home equity loan
A home equity loan provides fixed payments and a longer repayment term of up to 30 years.
Pros: Fixed rate, predictable payments, longer time to repay
Cons: Higher interest rate than HELOC, pays more interest over loan life
3. Refinance into a cash-out mortgage
You can roll your HELOC balance into a new first mortgage via a cash-out refinance.
Pros: Lower fixed rate, consolidate into one monthly payment
Cons: Higher closing costs than HELOC refi, rates rise as you tap more equity
4. Modify your existing HELOC
If you don’t qualify to refinance, ask your lender about modifying your current HELOC by extending the term or reducing the interest rate.
Pros: May make loan affordable without refinancing; quick process
Cons: Not a guarantee; lender not obligated to modify
Analyze the terms, rates, fees, and your goals to decide which option makes the most financial sense for your situation.
What Are the Pros and Cons of Refinancing a HELOC?
| Pros | Cons |
|---|---|
| Lower interest rate | Closing costs and fees |
| Fixed interest rate | No flexibility to draw additional funds |
| Longer repayment term, lower payments | More interest paid over loan life |
| Consolidate debts into one monthly payment | Home appraisal required |
| Access cash-out for other uses | Need adequate home equity |
| Improve unaffordable payments | Refinancing is not guaranteed |
As with any refinance, you’ll need to run the numbers to see if the costs of refinancing justify the potential interest savings and other benefits over the long run.
Shop multiple lenders to find the best available rates and terms for your situation. A reputable lender like [company name] can assess your options and illustrate the costs and savings to help determine if pursuing a HELOC refi makes solid financial sense.
What Interest Rate Can I Expect When Refinancing My HELOC?
The interest rate you can qualify for when refinancing your HELOC depends on several factors:
- Your credit score and history – scores above 740 fetch the lowest rates
- Your debt-to-income ratio – below 36% is ideal
- Your home equity – more equity means better rate offers
- Overall mortgage rates – compare today’s average rates on Bankrate
- Type of refinance loan – HELOCs have lower rates than other products
In today’s market, here are some general guidelines for HELOC refinancing rates based on your credit profile:
- Excellent credit (740+ score): 3.5% – 5%
- Good credit (700-739 score): 5% – 7%
- Fair/Average credit (640-699 score): 7% – 10%
The best way to determine the rate you can qualify for is to apply with multiple lenders and compare options. Focus first on reputable lenders like [company name] that offer HELOC refinancing.
How Can I Get the Best HELOC Refinancing Rate?
Here are some tips to get the lowest rate when refinancing your HELOC:
- Shop multiple lenders – compare offers from banks, credit unions, online lenders
- Check your credit – improve your score before applying if below 740
- Lower your debt – pay down balances to reduce your DTI ratio
- Choose a shorter term – shorter terms (e.g. 10 years) have lower rates
- Put down a larger down payment – higher equity means better rates
- Consider loan points – pay points to buy down your interest rate
- Improve your home – home improvements may increase appraisal value
- Ask about discounts – see if you qualify for any rate discounts
Even a small reduction in your HELOC refinancing interest rate can save thousands over the loan repayment period. Spending time upfront finding the best possible rate for your situation is well worth the effort.
What Closing Costs Are Associated With Refinancing a HELOC?
When refinancing a HELOC, expect to pay closing costs typically ranging from 2% to 5% of your loan amount. Common fees include:
- Appraisal fee – $300 to $500 for home valuation
- Application fee – $50 to $100
- Origination fee – 1% to 2% of loan amount
- Points – 1 point equals 1% of loan amount
- Attorney fees – $300 to $1,500
- Recording fees – $50 to $200
- Title fees – $500 to $1,500
- Taxes and insurance – 1 to 2 months required upfront
You may be able to finance closing costs into your new loan amount, but this increases the principal and interest you’ll repay over the life of the loan.
Shopping among multiple lenders can help you find options to lower or waive certain fees. Online lenders sometimes offer lower overall closing costs.
How Long Does it Take to Refinance a HELOC?
The timeline to refinance a HELOC can range from 30 to 60 days in normal market conditions. Here are typical steps and timeframes:
- Get pre-approved – 1 week
- Submit full application – 24 hours
- Processing and underwriting – 1-2 weeks
- Home appraisal – 1 week
- Final approval – 1 week
- Closing disclosure – 3 days before closing
- Loan closing & funding – 1-2 weeks
Having an organized application, getting documents in quickly, and promptly responding to any requests can help streamline the process
Compare Lenders and Offers
Once you’ve evaluated your current HELOC, shop different lenders to find the best refinancing option. Shopping around for the best offer can help you pay less in interest and find loan terms that work best for your unique situation.
As you’re comparing offers, research the interest rates each lender offers, the fees charged for loan origination and the loan terms. Seek out customer reviews to learn more about what experience you might expect from working with a specific lender.
Refinancing With a Cash-Out Refinance
A cash-out refinance is another popular way to refinance a HELOC. A cash-out refinance involves taking out a new mortgage on your home for more than you currently owe. You receive the difference in cash and can use some or all of the capital you receive to pay off the balance on your HELOC.
In essence, this means that you roll your HELOC into the cost of your new mortgage, where you’ll only be responsible for making one monthly payment. If you take this approach, it’s important to pay attention to interest rates as well as the closing costs and fees associated with taking out a new mortgage.
To calculate whether a cash-out refinance is in your best interest, you’ll need to consider the new interest rate and your new monthly mortgage payment, as a cash-out refinance will replace your current home mortgage with a new mortgage loan. In general, a cash-out refinance may be beneficial if your interest rate will go down. On the other hand, if your interest rate will increase significantly, you may want to consider other options.
>> Related: Learn more about cash-out refinance vs. home equity loans
Refinance Your HELOC!
FAQ
Is it worth refinancing a HELOC?
What happens to HELOC when you refinance?
How to get rid of a HELOC loan?
Can a HELOC be refinanced to a fixed-rate?
Can I refinance a HELOC?
To qualify for a HELOC refinance, you need to have adequate home equity to meet the lender’s guidelines. You can refinance a HELOC by refinancing into a new HELOC, using a home equity loan to pay off your HELOC, or refinancing into a new first mortgage. If you don’t qualify to refinance, then loan modification may be an option.
What is a HELOC & a cash-out refinance?
A HELOC is a revolving line of credit that lets you borrow against the equity in your home, and you repay the money over an extended period. A HELOC works like a credit card. Borrowers can tap into their credit line up to a preset limit. A cash-out refinance is another way to access home equity.
Can I use a home equity loan to pay off my HELOC?
You can use a home equity loan to pay off your HELOC. With a home equity loan, you may get up to 30 years to repay your balance instead of the 20 years that you likely had with your HELOC. Your new loan will have a fixed interest rate, and every monthly payment will be the same.
How do I refinance a home equity loan?
To refinance a home equity loan, you must guarantee the transaction with your property and have enough equity in your home. Your lender will consider all loans and mortgages taken out against the property. Most lenders will require a combined loan-to-value ratio (LTV) under 90%.