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Home Equity HELOCs

How to Refinance a HELOC

Updated Apr 05, 2023   |   6-min read

Home equity lines of credit are a good way to tap your home equity without taking on too much debt. Much like a credit card, you can take out only what you need from a HELOC, making them perfect for funding home renovations, college tuition, or other ongoing costs you might encounter.

With interest-only options, you can also defer any large payments for a significant amount of time (sometimes a decade or longer).

If you took out a HELOC, there may come a time when you’re ready to refinance it. Our guide breaks down how (and when) you might want to do it.

In this guide:

Who should consider HELOC refinancing?

If your home equity line of credit’s draw period is coming to a close, you might consider refinancing it. Refinancing can help you lower your interest rate, reduce your monthly payment, or help you fund new expenses.

The following are scenarios in which considering HELOC refinancing may be a good idea.

You don’t think you’ll be able to keep up with payments

HELOCs can be risky. With a flush line of credit before you, it can be easy to withdraw more funds than you intend. This can result in sky-high payments once your draw period ends.

As your repayment period approaches, make sure to check your projected monthly payments. If don’t think you can afford them, then refinancing can often help. By refinancing, you can extend your loan term and thus lower your monthly payments.

Keep in mind, though: spreading your payments out over a longer period of time or only making interest payments will mean paying more over the life of the loan, so this step should only be taken if your payments will be unmanageable.

You have new expenses you need to fund

If your current HELOC’s draw period is coming to a close and you have new debts or expenses you need to cover, refinancing can also be helpful. You’d simply refinance into a larger loan amount or credit line, allowing you to pay off your existing HELOC and still access cash for additional expenses.

Be careful about stacking debts, though. Not only can it mean paying more in interest over the long run, but it can also make your payments unmanageable once your repayment period starts.

It’s not as risky if you’re using the funds on something that can generate a return (like carefully chosen home renovations, for example), as you can eventually use the profits to help pay off your loan.

You think you can qualify for better rates

If your income has increased, you’ve reduced your debts, or your credit score has improved since taking out your initial HELOC, then there’s a chance you could qualify for better interest rates than the one you currently hold.

Additionally, variable rates change daily, so there’s a chance the average rate has dropped considerably as well.

To take advantage of these potentially higher rates, you’d need to refinance your HELOC into a new loan or line of credit. Start by getting a prequalified quote with your lender of choice, and then compare those to at least two or three other lenders just to be safe.

Make sure you factor in any application and origination fees, too, as well as the costs for any credit check or other charges.

How to Refinance a HELOC

It may be a long shot, but start with your current lender. If your credit has improved significantly or you have extenuating circumstances that would make it hard to afford your monthly payments, there’s a chance your current HELOC lender can help.

They may be able to adjust your rate, loan term, or payment schedule without needing to refinance or re-apply for a new loan.

If not, follow these steps below to refinance your HELOC:

1. Choose a loan type

Before you can refinance your HELOC, you need to decide what type of loan you’d like to replace it with.

You can choose:

  • A new HELOC: A new HELOC can be smart if you know you’ll have ongoing costs to cover in the future.
  • A home equity loan: This can be a good option if you’re done borrowing or you just have one final, fixed expense you need to finance. Because home equity loans come with fixed interest rates on a lump-sum loan, they can also help stabilize your monthly payments, making them easier to budget for and manage.
  • A new mortgage loan: A cash-out refinance can help you roll your HELOC balance and your existing mortgage into the same loan, streamlining your payments. It may qualify you for lower interest rates, too. Just make sure you pay attention to fees and closing costs here and be sure to shop around.

2. Gather your documentation

Once you know what loan you’re going to refinance into, start to gather up your financial documentation.

The exact paperwork you’ll need will vary slightly based on your loan type, but generally, you can expect to need:

  • Recent paystubs
  • Your last two tax returns
  • Your last two W-2s
  • A copy of your driver’s license
  • Recent bank and retirement account statements

Getting this documentation together early can help your application go more smoothly.

3. Compare quotes

Your next step is to get prequalified quotes from several top lenders. You can do this by providing some basic information about yourself to a prospective lender.

They’ll then run a soft inquiry on your credit report that won’t affect your credit score but will allow them to give you a realistic rate quote.

When comparing these quotes, make sure to take into account the interest rates you’re offered, the lender’s customer service record, and any fees they charge to originate and process your loan.

4. Apply with your best option

After you compare quotes, choose your lender and complete their application process. You’ll need to submit to a credit check, too, so it’s important you apply with just one lender to avoid multiple hard inquiries on your credit report.

Refinancing a HELOC? You have options

If you’re looking to refinance a HELOC, there are several ways to do it. Make sure you consider your options carefully, factoring in your financial health, credit score, and long-term goals as a homeowner.

If you’re still not sure how to proceed, consider talking to a mortgage broker, loan officer, or financial advisor for help.