You can refinance a home equity line of credit, or HELOC.
Refinancing can give you a new draw period, replace a variable-rate balance with a fixed-rate loan, or combine your HELOC with your first mortgage. But you'll need to qualify for the new HELOC, and your options can vary based on how much equity you have and how the new loan changes your total borrowing costs.
HELOC Refinance Basics
| Question |
What To Know |
| Can you refinance a HELOC? |
Yes. Common options include a new HELOC, a home equity loan or a cash-out refinance. |
| Do you need 20% equity? |
Not always. Equity requirements vary by lender and product. |
| Can you get a fixed rate? |
A fixed-rate home equity loan can replace a HELOC. Some HELOCs also offer a fixed-rate conversion feature. |
| Will you pay closing costs? |
Possibly. Fees depend on the product and lender and may include application, origination, appraisal, title or recording costs. |
| Can refinancing change your first mortgage? |
A cash-out refinance replaces the first mortgage. A new HELOC or home equity loan generally leaves the first mortgage in place. |
How a HELOC Works Before You Refinance
A HELOC is a revolving line of credit secured by your home. During the draw period, you can generally borrow up to your available credit limit and repay what you use. HELOCs usually have variable interest rates, so the rate and required payment can change over time.
Payment requirements during the draw period depend on the HELOC agreement. Some plans allow relatively low minimum payments, while others require more principal repayment. When the draw period ends, you generally can no longer borrow and must repay the outstanding balance under the plan’s repayment terms. The Consumer Financial Protection Bureau notes that payments are often significantly higher during repayment and that some plans can require a balloon payment when the draw period ends.
Before refinancing, review your current balance, variable-rate index and margin, draw-period end date, repayment term, minimum payment formula and any early-termination or cancellation fee.
Ways To Refinance a HELOC
Replace Your HELOC With a New HELOC
A new HELOC can pay off the existing line and give you a new credit line under a new agreement. This may be useful if you still want revolving access to your home equity or want a new draw period.
A new HELOC can also change your rate structure, margin, credit limit and fees. Because HELOCs usually have variable rates, a lower starting rate does not guarantee lower borrowing costs over the full life of the line.
Replace the HELOC With a Home Equity Loan
A home equity loan can replace the revolving HELOC balance with a closed-end installment loan. Home equity loans commonly provide a fixed payment schedule and may have a fixed interest rate, which can make the repayment obligation easier to predict.
This option can make sense if you no longer need revolving access to credit and want to repay the balance over a defined term. You give up the ability to repeatedly draw and repay funds as you could with a HELOC.
Roll the HELOC Into a Cash-Out Refinance
A cash-out refinance replaces your existing first mortgage with a new mortgage for a larger amount. The new loan proceeds can be used to pay off the first mortgage and the HELOC, leaving you with one new first mortgage.
This can simplify multiple housing debts into one loan, but it also replaces the rate and term on your existing first mortgage. If your current first-mortgage rate is favorable, replacing it may increase the cost of debt that was previously financed at a lower rate.
The CFPB also notes that a HELOC can affect a refinance of your first mortgage when the HELOC will remain in place. In that situation, the HELOC lender may need to approve the refinance or agree to remain in a subordinate lien position.
Ask Whether Your Existing HELOC Has a Fixed-Rate Conversion Option
Some HELOCs let you convert part or all of an outstanding variable-rate balance to a fixed rate without replacing the entire line. This is not the same as refinancing, but it may accomplish a similar goal if your priority is more predictable payments. The CFPB notes that lenders must disclose the rules, rate method and any fees for a fixed-rate conversion feature when the plan offers one.
HELOC Refinance Options Compared
| Option |
May Fit If You Want |
Potential Trade-Offs |
| New HELOC |
Continued revolving access and a new draw period |
Usually variable-rate exposure and possible HELOC-specific fees |
| Home equity loan |
A defined repayment term and more predictable payments |
No revolving access after the old HELOC is paid off |
| Cash-out refinance |
One new first mortgage instead of separate first- and second-lien debts |
Replaces the terms of your existing first mortgage and may involve higher mortgage closing costs |
| Fixed-rate HELOC conversion |
More predictable payments without replacing the entire HELOC |
Availability, pricing and fees depend on the existing HELOC agreement |
How Much Equity Do You Need To Refinance a HELOC?
There is no single equity requirement that applies to every HELOC refinance. Lenders evaluate how much of the property value would be encumbered after the new loan closes and apply limits based on the product, lien position, occupancy, property type and underwriting rules.
For a new HELOC or home equity loan, lenders commonly use combined loan-to-value, or CLTV, because the calculation includes the first mortgage and the new or existing home equity debt. A simplified CLTV formula is: total mortgage debt divided by the property value.
For a cash-out refinance, the applicable limit depends on the mortgage program. As one example, Freddie Mac currently caps cash-out refinance mortgages on a one-unit primary residence at 80% LTV. That does not create an 80% rule for every HELOC or home equity product.
Your available equity also does not determine approval by itself. The lender can review your credit history, income, employment, existing debts, property value and ability to repay.
What Does It Cost To Refinance a HELOC?
The cost depends on which refinancing path you choose. A new HELOC or home equity loan can carry different fees from a cash-out mortgage refinance, and some lenders may waive or absorb certain charges in exchange for other pricing terms.
For HELOCs, the CFPB lists possible application, origination, appraisal, title, annual, inactivity, early-cancellation and fixed-rate conversion fees. Not every lender charges every fee.
A cash-out refinance can include mortgage closing costs such as appraisal, title, government recording charges, prepaid expenses and lender fees. A so-called no-closing-cost refinance does not necessarily eliminate those costs. The lender may instead provide a credit in exchange for a higher rate or add eligible costs to the loan balance.
Rather than relying on a generic percentage estimate, compare the itemized fees and annual percentage rate for the specific offers you receive.
When Refinancing a HELOC May Make Sense
A HELOC refinance may be worth considering when the new structure better matches how you plan to use and repay the debt.
- Your draw period is ending and you want a different repayment structure.
- You want to replace a variable-rate balance with a fixed-rate loan or fixed-rate segment.
- You still need revolving credit and want a new HELOC with terms that better fit your needs.
- Your home equity or financial profile has changed enough to qualify for a different credit limit or loan structure.
- You want to consolidate your first mortgage and HELOC into one new first mortgage and the new total cost is acceptable.
A lower monthly payment by itself does not prove that a refinance is cheaper. Extending the repayment term can reduce the required monthly payment while increasing the amount of interest paid over time.
When Refinancing a HELOC May Not Make Sense
Refinancing may be less attractive when the fees outweigh the expected benefit, when you would replace a favorable first-mortgage rate with a materially higher rate, or when a longer repayment term increases total borrowing costs more than you are comfortable with.
A new variable-rate HELOC can also expose you to future rate increases. If your goal is payment certainty, compare a new variable HELOC with fixed-rate alternatives and any fixed-rate conversion feature already available on your current line.
How To Compare HELOC Refinance Options
- Review your existing HELOC. Check the balance, available credit, current rate, index and margin, draw-period end date, repayment terms and fees.
- Estimate your equity and CLTV. Include your first mortgage and any other debt secured by the property.
- Define the goal. Decide whether you primarily want revolving access, a fixed payment, a lower borrowing cost, a longer repayment period or one consolidated mortgage.
- Compare the full terms. Review the interest rate, APR when applicable, loan term, draw and repayment periods, credit limit, closing costs and ongoing fees.
- Compare the effect on your first mortgage. A home equity loan or new HELOC can leave the first mortgage intact, while a cash-out refinance replaces it.
- Review payment risk. If you are considering another variable-rate HELOC, calculate whether you could afford payments if the rate rises.
- Check the break-even period when the new loan is expected to reduce your costs. Compare upfront costs with expected savings over the period you expect to keep the new loan.
Steps To Refinance a HELOC
- Request your current HELOC payoff information and review the existing agreement.
- Estimate the property value and calculate your current mortgage debt and equity.
- Compare a new HELOC, home equity loan, cash-out refinance and any fixed-rate conversion option available through the current HELOC.
- Apply for the product that fits your objective and provide the requested income, asset, debt and property documentation.
- Review the disclosures and final terms, including all lender and third-party fees.
- Confirm how the existing HELOC will be paid off or closed and whether any early-termination fee applies.
- Complete closing and any applicable rescission period before the new transaction is funded.
A credit application can involve a hard inquiry. The CFPB says mortgage-related inquiries typically have a small negative effect on credit scores, and rate-shopping inquiries made within a limited period are generally treated together by scoring models.
Does a HELOC Refinance Have a Three-Day Cancellation Period?
Federal law gives consumers a right to rescind many non-purchase-money credit transactions secured by a principal dwelling. That commonly includes refinances, home equity loans and HELOCs. In covered transactions, the consumer generally has three business days to cancel after the required events and disclosures occur.
The right does not apply to every transaction. For example, CFPB guidance identifies an exception for certain refinances with the same creditor when no additional funds are borrowed. Review the closing disclosures for the transaction you are considering.
Bottom Line
You can refinance a HELOC in several ways. A new HELOC preserves revolving access, a home equity loan can replace the balance with a defined repayment schedule, and a cash-out refinance can combine the HELOC with your first mortgage. Some existing HELOCs also allow a fixed-rate conversion without a full refinance.
Compare the new rate, repayment term, fees, effect on your first mortgage and total borrowing cost. Equity requirements are not universal, so use the actual LTV or CLTV limit for the loan product you are considering rather than assuming you must retain exactly 20% equity.
Frequently Asked Questions
Can I Refinance a HELOC Before the Draw Period Ends?
Yes. You do not have to wait until the draw period ends to replace a HELOC. Check your current agreement for any early-cancellation fee or other payoff requirements before refinancing.
Can I Refinance a HELOC With Less Than 20% Equity?
Possibly. There is no universal rule requiring you to retain exactly 20% equity after a HELOC refinance. Maximum LTV or CLTV requirements depend on the new loan type, lender, property and underwriting rules.
Can I Convert a HELOC to a Fixed Rate Without Refinancing?
Sometimes. Some HELOC agreements let you convert part or all of a variable-rate balance to a fixed rate for a specified repayment period. Availability, rates and fees depend on the plan.
Will Refinancing a HELOC Affect My Credit Score?
Applying for new credit can result in a hard inquiry, which can affect your credit score. The effect of a mortgage inquiry is typically small, and scoring models generally account for rate shopping completed within a limited period.
Can I Refinance My First Mortgage and Keep My HELOC?
Possibly, but the HELOC lender may need to approve the new first mortgage and agree to remain in a subordinate lien position. If that approval is not granted, you may need to pay off or refinance the HELOC as part of the transaction.
How Long Does It Take To Refinance a HELOC?
There is no universal closing timeline. Timing depends on the lender, loan type, property valuation, title work, documentation and any required rescission period. Ask the lender for the expected timeline for the specific transaction.
What Fees Can Apply When Refinancing a HELOC?
Depending on the product and lender, possible costs can include application, origination, appraisal, title, recording, annual, early-cancellation or conversion fees. A cash-out mortgage refinance can have a different closing-cost structure from a new HELOC or home equity loan.
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