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You have options if you need a higher limit than your current home equity line of credit (HELOC) allows.
First, you can refinance your HELOC. This replaces your HELOC with a larger one and includes a new term and interest rate. In some cases, you may also be able to modify your existing HELOC, though we could not find any lenders offering this option.
Here’s how to increase your HELOC limit—and when it might be a smart move.
In this guide:
- Am I eligible to increase my HELOC limit?
- Should I refinance to increase my HELOC limit?
- Will any terms other than the credit limit change?
- Will I pay more to increase my credit limit?
- How do I refinance my HELOC?
- What other options do I have if refinancing isn’t right for me?
Am I eligible to increase my HELOC limit?
HELOC limits are based on your loan-to-value ratio (LTV) and financial situation. To qualify for an increase, one of these factors needs to have changed since you first applied.
This might mean:
- You’ve paid down your mortgage balance: Most lenders will only let you borrow up to 80% of your home’s value minus your mortgage balance. If you’ve whittled down your balance since you first took out your HELOC, this could reduce your LTV and give you more borrowing power.
- Your home value has increased: An increase in your home’s value also lowers your LTV and lets you borrow more. This might happen if home prices rise in your area or you make certain improvements to the property.
- You paid down debts or make more money: Lenders use your debt-to-income ratio to gauge how much you can afford. If your earnings have increased or you’ve reduced your debts, you might be eligible for a higher balance.
An increased credit score could help as well. It might qualify you for a better interest rate, meaning a lower monthly payment and fewer long-term costs.
Should I refinance to increase my HELOC limit?
Can you increase your HELOC limit? It’s possible. Should you? That’s another story.
Refinancing a HELOC is a personal decision. It can be a smart move for certain homeowners but ill-advised for others.
For example, refinancing your HELOC might be wise if:
- You want to make one monthly payment instead of several on multiple loans.
- You can qualify for better terms than your current HELOC.
- You can afford any added fees.
Refinancing to increase your HELOC limit might not be the right solution in the following situations:
- You’re unsure of your finances or employment situation.
- Your home’s value has dropped.
- You have more debt than you did when you applied for your HELOC.
In these scenarios, you may not qualify for a higher limit, or you might have trouble covering the higher payments.
Will any terms other than the credit limit change?
Any time you refinance your HELOC—or any loan, for that matter—the terms can change. This might mean instead of a 10-year draw period and a 20-year repayment period, your new HELOC has a five-year draw and a 10-year repayment.
Your interest rate and payment terms might also change. For example, you might have a balloon payment—where your entire loan balance is due—at the end of your loan rather than fixed principal-and-interest payments.
None of these term changes should come as a surprise. When you apply to refinance your HELOC, your lender will present you with the options for which you’re eligible. You can then choose which suits your needs and budget best (or, if none align with your goals, skip the refinance altogether).
In all cases, refinancing will reset your HELOC. If you were on year 10 of your previous HELOC, your new one would start over at year zero. This may or may not be beneficial, depending on your goals.
Will I pay more to increase my credit limit?
Some HELOCs come with closing costs, but it depends on the lender. If you owe closing costs, you can expect them to amount to 2% to 5% of the total limit.
You can sometimes finance your closing costs and take them out of your HELOC proceeds. Be aware, though: This will reduce the funds you can withdraw from your line of credit—and it could increase your interest costs.
You might have to pay up for your HELOC refinance beyond closing costs. For example, if your new HELOC has a higher interest rate than your current one, it will mean more long-term interest costs. A longer term would also be costlier, as it would allow you more time to rack up interest.
How do I refinance my HELOC?
If you’re considering refinancing your HELOC, first, calculate your equity by subtracting your mortgage balance from your home’s current value. Your county’s appraisal district can help here. Most have a website where you can look up your property’s appraised value, but if yours doesn’t, you can call or use your most recent annual appraisal notice.
Once you know this number, ask yourself: Do I have enough potential equity?
If so, it’s time to find a lender. You can consider your current lender when refinancing, but be sure to consider other options too. Terms, rates, and product offerings can vary by company, so shopping around helps ensure you’re getting the best deal. If you need recommendations for other options, consider our list of the best HELOC lenders as a starting point.
Once you’ve decided on a lender, you will:
- Fill out their HELOC application, and agree to a credit check.
- Submit financial documentation, including W-2s, pay stubs, tax returns, and bank account statements. Your loan officer will let you know what they need.
- Pay your closing costs, and close on your loan.
HELOCs tend to be quick to process. According to the Credit Union of Southern California, you can expect to close—and get access to your funds—within two weeks in most cases.
What other options do I have if refinancing isn’t right for me?
You have other choices if you need more cash and don’t want to refinance your HELOC (or can’t qualify).
A cash-out refinance of your first mortgage is one option. In this scenario, you’d take out a new mortgage loan larger than your current one and receive the difference in cash. You could then use the funds toward paying off your HELOC or other expenses.
Personal loans and credit cards are other options. Note that interest rates are often higher, so they may be more expensive.
Author: Aly Yale