Can you refinance a HELOC?

Yes, you can refinance a HELOC.  

Refinancing a HELOC can be a powerful tool to help you get the most out of tapping into your home’s equity. 

A HELOC, or home equity line of credit, lets borrowers access a line of credit based on a portion of the equity they own in their home.  

HELOCs work in two periods: a draw period and a repayment period.  

When borrowers are in their draw period, they can access their funds for any reason they need. While they are in their draw period, borrowers will only need to pay interest on the funds they use.  

After a draw period ends, borrowers enter their repayment period, where they cannot make more draws on their funds and will have to pay back funds accessed and interest on them. 

Refinancing a HELOC can bring many benefits to borrowers, including lowering rates, extending draw periods, increasing the funds they could have access to or switching to a fixed rate. 

Those looking to refinance their HELOC can begin with an online application. 

What it means to refinance a HELOC  

Refinancing your HELOC allows you to change the terms of your loan for your benefit. Altering your HELOC terms through a refinance could mean getting a lower interest rate, extending your draw period or switching to fixed rate trm. 

Of course, to take advantage of the benefits of a HELOC refinance, borrowers will need to meet a lender’s requirements to qualify. 

How refinancing a HELOC works 

Refinancing a HELOC could work slightly differently depending on when you decide to take the steps to refinance. Here’s how refinancing could work for you during the different HELOC periods.  

Refinancing during the draw period 

If your home value has significantly increased after starting your draw period, a refinance could boost the amount you could borrow or increase the length of your draw period. Refinancing during your draw period could also put you in a better position for when you enter your repayment period. 

Refinancing during the repayment period 

Many borrowers choose to refinance during their repayment period to reduce their monthly payments. Switching from variable rate to fixed interest rate could make payments more stable while potentially reducing your interest payments.  

Options for refinancing a HELOC 

Here are a couple of options you may have when looking to refinance your HELOC. 

Replace your HELOC with a new HELOC 

You can replace your current HELOC with another one to extend your draw period. Depending on your lender, you could get a new HELOC and roll some of your old balance into your new HELOC. 

This is a good option for borrowers whose home value and home equity have increased during the life of the original HELOC. 

Convert your HELOC to a fixed-rate loan 

A fixed interest rate on loans allows borrowers to better predict and plan for their monthly payments. Refinancing a HELOC could convert your interest payments from a variable rate to a fixed rate. 

Roll your HELOC into a cash-out refinance 

A cash-out refinance gives you a larger mortgage based on the difference between your home’s value and your remaining mortgage balance. In this case, when rolling your HELOC into a cash-out refinance, you will use your funds from a cash-out refinance to pay off all or part of your HELOC. 

Refinance into a home equity loan 

Home equity loans let borrowers tap into their home equity, similar to a HELOC, but offer funds as a lump-sum payment that will need to be paid back shortly after the start of the loan.  

Refinancing a HELOC into a home equity loan could extend your repayment period and potentially lower your monthly payments. If you choose a home equity loan with a fixed interest rate, you would also gain stability in interest payments. 

Reasons to refinance a HELOC 

Here are a few popular reasons borrowers choose to refinance a HELOC. 

Lower your interest rate 

If interest rates have dropped since you got your HELOC, refinancing could reduce the amount you pay toward interest through the life of your loan. With a HELOC, interest will be paid after you start accessing your funds. Lowering your interest rate through a refinance could save you money*. 

Switch from variable to fixed-rate interest 

A variable rate** on a HELOC will change the amount of interest you pay according to current mortgage rates. While this does mean that your interest rates could drop, it also means they could rise. Variable rates on a HELOC could make interest payments hard to predict and plan for future payments. Refinancing to a fixed rate could help stabilize your interest payments. 

Access additional home equity 

If your home’s value has increased since starting your HELOC, a refinance could give you access to that additional value and home equity. This is a great option for a borrower looking for additional funds. 

Requirements to refinance a HELOC 

When looking to refinance a HELOC, you will have to meet a few requirements. Here are a few of the requirements you may see during a HELOC refinance. 

Requirements can vary depending on your lender. 

Home equity 

To refinance your HELOC, you will need to make sure the equity in your home meets minimum equity requirements. Many lenders look for borrowers to have at least 20% home equity before being able to refinance. 

Credit score guidelines 

Your credit score is important when refinancing a HELOC. Most lenders look for borrowers to have a credit score of at least 620 to 680 when refinancing their HELOC. The higher credit score you have, the better terms and rates you could get on your refinance. 

Debt-to-income ratio 

Debt-to-income (DTI) ratio refers to the amount of income a borrower has committed to paying off previous debts. If you are looking to refinance your HELOC, many lenders require borrowers to have a DTI ratio of no more than 43%. 

Costs to refinance a HELOC 

While refinancing a HELOC could come with many benefits, including potentially saving a borrower some money during the life of a loan, there are some costs that could come with refinancing. Make sure you look at and consider all costs to make sure a HELOC refinance is right for you. 

Closing costs and lender fees 

When refinancing a HELOC, borrowers can expect to pay closing costs to cover the expense of a lender working on your application as well as a home appraisal and recording fees. These closing costs can run a borrower from 2% to 5% of the total loan amount. 

Prepayment penalties and early closure fees 

Unlike other loan types, most HELOCs do not have prepayment penalties but might have early closure fees.  
Lenders require early closure fees if a HELOC is closed within the first few years. These fees are there to help lenders recover interest they would have received during the life of the loan. Early closure fees could be required if you refinance your HELOC into another loan type. 

When refinancing a HELOC makes sense 

Borrowers looking to refinance a HELOC should consider current mortgage rates, their home’s value and whether they would like to access their funds for a longer period of time. 

If mortgage rates have dropped since you started your HELOC, a refinance might reduce your monthly payments. If your home value has increased, chances are good that your home equity has as well.  

Refinancing when this happens could increase the amount of funds you have access to. Borrowers whose draw period is coming to an end but who haven’t used all their funds could also look into a refinance to gain more time to access those funds. 

How to apply to refinance a HELOC 

If you are looking to apply for a HELOC refinance, you can start with an online application. 

Online applications connect borrowers to professional Loan Officers who can walk them through the application process and answer any questions they may have. These Loan Officers can help borrowers choose the right way to refinance by giving them an idea of what each option would look like based on their financial situations. 

Apply to refinance a HELOC today with an online application. 

*Savings, if any, vary based on the consumer’s credit profile, interest rate availability, and other factors. Contact Owning for current rates. Restrictions apply. 

**The variable rate home equity line of credit (HELOC) is an open-end product where the borrower can withdraw funds and make interest only payments during the draw period. Monthly payments will increase to include both principle and interest payments after the draw period has ended. A minimum 90% of the total approved HELOC amount must be disbursed. The remaining 10% of the approved credit line can be drawn down later as needed during the draw period. The monthly variable interest rate is based on an Index, which is the Prime Rate published in the Wall Street Journal plus a fixed margin. This product is currently only available in Arizona, California, Illinois, Massachusetts, and New Jersey. The HELOC requires you to pledge your home as collateral, and you could lose your home if you fail to repay. Property insurance is required as a condition of the loan and flood insurance may be required if your property is located in a flood zone. Borrowers must meet minimum lender requirements in order to be eligible for financing. Available for primary, second homes and investment properties only. Property type, loan-to-value, and FICO restrictions and requirements apply. Dependent on minimum credit score and debt-to-income requirements. Occupancy status, lien position and credit score are all factors to determine your rate and max available loan amount. Not all applicants will be approved. Applicants subject to credit and underwriting approval. Contact Rate for more information and to discuss your individual circumstances. Restrictions Apply. 

Applicant subject to credit and underwriting approval. Not all applicants will be approved for financing. Receipt of application does not represent an approval for financing or interest rate guarantee. Refinancing your mortgage may increase costs over the term of your loan. Restrictions may apply