Your home equity line of credit (HELOC) may follow you for decades. A typical draw period is 10 years, and repayment periods range from five to 20 more years. If you decide your HELOC is no longer the right fit, you can refinance your line of credit with another bank.
Refinancing can be straightforward, depending on whether you want to borrow additional funds or replace your current HELOC terms.
Here’s a look at how you can refinance your HELOC, what lenders will require, and why you might want to replace a line of credit.
In this guide:
- When you should refinance a HELOC with another lender
- When you shouldn’t refinance a HELOC with another lender
- How to refinance my HELOC with another bank
- How do eligibility requirements change if I refinance my HELOC?
- How is my current HELOC paid off if I refinance with a new lender?
- Will I have to pay fees to refinance into a new HELOC?
- How do I know if the new bank is better than my current one?
- Alternatives to refinancing into a new HELOC
When you should refinance a HELOC with another lender
Refinancing a HELOC with a different lender could make sense in the following three instances.
If you want to continue borrowing after your draw period ends
The typical HELOC has a draw period of 10 years, meaning during the first decade the line of credit is open, you can withdraw funds, similar to a credit card.
When that draw period ends, the HELOC transitions to a repayment period in which you can no longer borrow funds, and you’ll begin paying principal and interest.
If your draw period ends and you want to continue borrowing against your home’s equity, you’ll need to either reopen the HELOC or refinance your HELOC with a new lender. Either option will allow you to continue borrowing—or keep the line of credit open and available—for another draw period.
If you want better loan terms
Your HELOC will come with terms that dictate how and when you repay your debt. These terms include:
- Draw period (often 10 years).
- Repayment period (often 20 years, but could be as short as five years).
- Interest rate.
Let’s say you take out a HELOC with a 10-year repayment term. If you reach the end of your draw period and realize that you would like more time to repay the borrowed amount, you could refinance into a new HELOC and extend the repayment period. This would reduce your monthly payment and give you more time to clear the debt.
HELOCs often have variable interest rates. However, if you lock your debt in with a new loan at a fixed rate, you could reduce out-of-pocket expenses and set yourself up with a predictable monthly payment. This could mean any of the following:
- Getting a fixed-rate HELOC.
- Refinancing into a home equity loan.
- Refinancing into a cash-out refinance.
- Moving the debt over to a personal loan.
If you can’t yet afford to make principal and interest payments
In the draw stage of your HELOC, you often only need to make interest payments on the borrowed funds. Even if you max out your HELOC, this could only amount to hundreds of dollars, depending on your rate and terms.
Once you enter the repayment period, you’ll have several years (often 20) to repay the borrowed amount and interest due. This could multiply your monthly payment obligation overnight. You might need more time if your budget isn’t ready for that.
By refinancing your HELOC, you can get relief from a hefty monthly payment you’re not ready to make. Remember: This might increase the interest you pay overall, depending on how you manage the debt and the refinance terms.
When you shouldn’t refinance a HELOC with another lender
Now, you might not want to refinance your HELOC with a different lender in the following four situations.
When your lender lets you renew and reopen your HELOC
If your reason for refinancing is to continue borrowing against your HELOC, or you aren’t ready to repay the debt, see if your lender will allow you to renew the line of credit. This could reopen the line and defer your repayment period, and it may save you from the closing costs and fees you’d incur refinancing with a new lender.
If you renew with your current lender, you may still be subject to fees. You might also face different terms, such as a lower borrowing limit or a shorter time frame. Check with your lender to see your options before moving forward.
If you don’t have any remaining equity to borrow against
To refinance a HELOC with a new lender, you’ll need to take out another home equity line of credit. You can then use those funds to pay off your current line.
If you’ve already tapped into most of your home’s equity with your first HELOC, you may not qualify for a new line of credit secured by your home.
Say you have a property worth $400,000 and owe $250,000 on your original mortgage. Your lender has a combined loan-to-value ratio (CLTV) limit of 85% and lets you take out a HELOC for $90,000. By the end of the draw period, you’ve borrowed $80,000 against that line of credit.
While you still have remaining equity (and have likely made a dent in your mortgage balance), you may not have enough equity to refinance into a new debt secured by your home. Your required payments on the original HELOC will also affect your monthly debt-to-income ratio (DTI) and may disqualify you from a new lender’s requirements.
Your credit score has gone down
To qualify for a home equity line of credit, you need to have equity in your home and meet the lender’s requirements. These requirements often include a minimum income threshold, a maximum DTI, and a minimum credit score.
If your credit score has fallen since you opened your HELOC, you might find it more challenging to qualify for a refinance with a new lender. If you get approved, your lower credit score might mean limited terms and a higher interest rate, costing you more money in the long run.
Your new HELOC terms would be worse
In some cases, refinancing your HELOC with another bank could result in terms that don’t work for your budget or cost you more in interest over the life of the repayment. This could occur if market interest rates have risen since you first took out your HELOC or the lender thinks you represent more risk due to a higher DTI, lower LTV, or decreased credit score.
In this situation, it’s important to weigh the pros and cons to decide if how badly you need the refinance. Sometimes refinancing a HELOC—even with worse terms, such as a higher interest rate—could be worthwhile.
For example, if you’re nearing the end of your draw period but can’t afford to start repaying the principal balance as scheduled, refinancing might be the best answer for your budget even if it costs more over time. However, many borrowers have options that are less complex and less costly.
How to refinance my HELOC with another bank
The process should be similar to when you opened your original HELOC if you plan to refinance with a new HELOC or home equity loan using another lender.
You’ll want to shop around to find a lender with the best interest rates, borrower requirements, and CLTV. You can then begin applying and get a home appraisal (if the lender requires it) to determine your equity.
Check out our guide to refinancing a HELOC.
How do eligibility requirements change if I refinance my HELOC?
The eligibility requirements for a refinance may differ from those of your original HELOC. This depends on whether you stick with the same lender and how much equity you have in your home. Just because you qualified for a HELOC once doesn’t mean you’ll qualify again, and you may even find it more difficult to qualify once you’ve tapped into your home’s equity.
The requirements may differ if you decide to pursue a personal or home equity loan. Since a personal loan is unsecured, lenders often require a higher credit score and better DTI. Home equity loans may have different CLTV thresholds, and loan limits may vary from one lender and product to the next.
How is my current HELOC paid off if I refinance with a new lender?
Refinancing your HELOC allows you to pay off that debt with a new loan or line of credit, which you may get through the same lender or a new one. How the HELOC is paid off depends on how you’re refinancing.
Option 1: Whether you take out a new HELOC, home equity loan, or personal loan to pay off the current HELOC, you can take the proceeds after disbursement and pay off your balance. Your new lender will provide you with checks or an electronic option for the funds, which you can use to pay off your HELOC in full.
Option 2: Your lender may offer to facilitate this payoff for you. If that’s the case, your new lender will request your HELOC account information. Instead of sending the funds from the new loan to you, it will direct them to your previous HELOC lender.
Do I have to notify my current lender that I refinanced, or will the new lender do that?
You don’t need to notify your current lender before you refinance. You can use the funds from the new loan or line of credit to pay down the original HELOC, or your new lender can send the funds to the previous lender if it offers to do so.
We recommend confirming with your current lender that the balance is paid off. The lender can advise whether you need to take any extra steps before it closes the line of credit.
Will I have to pay fees to refinance into a new HELOC?
You might pay fees to refinance, especially if you open a new HELOC.
Depending on the HELOC—and whether you use a new lender or ask your current lender to renegotiate—these fees could be similar to your original line of credit.
Regardless of whether it’s your first HELOC or your fifth, the fees can include:
- Closing costs
- Home appraisal fees
- Early payoff fees
- Annual fees
Certain lenders may absorb some of these costs or even waive them, often if you hold other qualifying accounts through the same bank.
How do I know if the new bank is better than my current one?
Many factors go into finding the “best” bank to tap into your home’s equity. The best bank for you might not be the same one that’s right for your parents, siblings, or friends.
When comparing lenders, be sure to look at their:
- Maximum LTV
- Maximum DTI
- Required credit score and income
- Offered interest rates and repayment terms
- Fees (and whether they waive any)
Shopping around can help ensure you get the right loan at the right cost.
In some cases, this could lead you to a new bank. For others, you might find your current HELOC lender is the best pick.
Alternatives to refinancing into a new HELOC
Rather than refinancing into a new HELOC, alternative loan options include the following.
Modify my HELOC terms with my current lender
In some cases, you might ask your current HELOC lender if it’s willing to adjust the terms of your account. Rather than lose you to another lender, it may be open to renegotiating—particularly if you have a history of on-time payments and positive account management.
Your current lender could agree to any of the following:
- Interest-rate reduction
- Extended repayment term
- Principal balance reduction
- Conversion from a variable interest rate to fixed
Another of these could save you money and allow you to adjust your HELOC to fit your needs.
Since you won’t need to open a new account or take out a new loan, you’ll also save on origination fees, closing costs, and new home appraisal fees.
A cash-out refinance is a lump-sum installment loan. Like a HELOC, your home secures this loan. Offered by banks, credit unions, and other lenders, this option is a way to pull equity out of your home in the form of cash.
You can also use a cash-out to refinance a HELOC or mortgage.
In some cases, qualified homeowners could combine their original mortgage loan and HELOC balance into one simple cash-out refinance loan.
Depending on the terms and how much equity you have in the property, you may be able to withdraw additional equity from your home. Just be sure to consider how the interest rate the lender offers on a cash-out refinance compares to other loans you might use it to refinance.
Refinance into a personal loan
You won’t need your property to secure the debt for a personal loan, so a home appraisal isn’t necessary. But you’ll still need to qualify based on your credit history, income, and DTI. It’s important to note that unsecured debt (like a personal loan) is often more difficult to qualify for since a tangible asset doesn’t serve as collateral.
Home equity loan
A home equity loan is similar to a HELOC, except it doesn’t offer a line of credit or draw period. Instead, you withdraw your home equity in one upfront lump sum, which you repay through monthly installments, like a personal or mortgage loan.
If you have enough equity in your property, you may be able to use a home equity loan to refinance your HELOC. One benefit to home equity loans is they often offer fixed interest rates, so you’ll have a set monthly payment and predictable interest.
Regardless of which product you use to refinance your HELOC, spend time contacting lenders, researching rates, and shopping for the best terms to fit your needs.