A Home Equity Line of Credit (HELOC) can be extremely useful when you need ongoing access to funds—whether for home improvement, education, or emergency expenses. However, like any loan, the terms of a HELOC can become less favorable over time. Interest rates may rise, your draw period may end, or your financial situation may change.
When this happens, refinancing a HELOC becomes an attractive option for many homeowners. If you want to understand refinancing, you can also read “How Often Can You Refinance Your Home?” to get a clearer picture of how frequently borrowers can refinance.”
Refinancing simply means replacing your current loan with a new one that better suits your needs. In the case of a HELOC, it can help you lower your payments, avoid a repayment shock, switch from a variable interest rate to a fixed one, or consolidate debts into a single manageable payment.
This article covers everything you need to know—what a HELOC is, why and when to refinance, the various refinancing methods available, eligibility requirements, pros and cons, and the best alternatives. For additional refinancing insights, you can also check out our article on Can You Refinance a Car Loan With the Same Bank?.
What is a Home Equity Line of Credit (HELOC)?
A Home Equity Line of Credit (HELOC) is a type of revolving credit line that is secured by your home’s equity. It works similarly to a credit card because you can borrow money as needed, repay it, and borrow again, up to a set limit.
To understand a HELOC better, you need to know about its two main phases:
1. The Draw Period (usually 5–10 years)
During this phase:
- You can borrow money whenever you need it.
- You usually only make interest-only payments.
- The interest rate is usually variable, meaning it can go up or down depending on the market.
This makes HELOCs flexible but also unpredictable.
2. The Repayment Period (10–20 years)
Once the draw period ends:
- You can no longer borrow more money.
- You must begin paying both principal + interest.
- Monthly payments often increase significantly because interest-only payments end.
This sudden increase is one of the biggest reasons homeowners choose to refinance their HELOC.
Can You Refinance a HELOC?
Yes, you absolutely can refinance a HELOC.
Refinancing means taking out a new loan to pay off the existing HELOC. This gives you a chance to change the loan terms and structure to something more favorable.
You can refinance a HELOC by:
- Getting a new HELOC
- Switching to a home equity loan
- Doing a cash-out mortgage refinance
- Combining it with your current mortgage
- Converting the HELOC to a fixed rate
- Using a personal loan or balance transfer (in certain cases)
Each method has different benefits depending on your financial goals.
Why Refinance a Home Equity Line of Credit?
People refinance their HELOCs for many reasons. Here are some of the most common (explained in depth):
1. Avoid the Payment Shock
Once the draw period ends, your HELOC payment can jump significantly—sometimes two or three times higher. Refinancing allows you to reset the timeline and avoid sudden financial pressure.
2. Lower Your Interest Rate
If interest rates have dropped since you took out your HELOC, refinancing can help you lock in a lower rate and reduce long-term interest costs.
3. Switch from Variable to Fixed Rate
Variable rates can fluctuate unpredictably. Refinancing to a fixed-rate loan provides stability and predictable monthly payments.
4. Consolidate Multiple Loans
If you have other debts (mortgage, HELOC, credit cards), refinancing can help you roll them into one loan with a single payment.
5. Borrow Additional Money
Some homeowners refinance because they need more funds for renovations, medical expenses, or investments.
6. Extend the Repayment Term
If you want lower monthly payments, refinancing to a longer repayment term can help reduce your financial burden.
When is a Good Time to Refinance a HELOC?
Refinancing is not always beneficial; timing matters. Consider refinancing when:
1. Your Draw Period is Ending Soon
If your HELOC is about to enter repayment, now is the perfect time to refinance and avoid large monthly payments.
2. Interest Rates Are Lower
If market rates drop, refinancing can save you thousands in interest.
3. Rates Are Increasing and You Want Stability
A variable-rate HELOC becomes risky during rising-rate environments. You may want to lock in a fixed rate.
4. Your Credit Score Has Improved
Better credit often qualifies you for better rates and loan terms.
5. Your Home Equity Has Increased
If your home value has appreciated, refinancing becomes easier and may offer more benefits.
6. You Want Better Monthly Cash Flow
Lowering your monthly payment through refinancing can free up money for other expenses.
6 Ways to Refinance a a Home Equity Line of Credit (HELOC)
1) Refinance into a new HELOC (replace your HELOC with another HELOC)
What it is: take out a brand-new home equity line of credit to pay off the old one. You essentially “reset” the HELOC: new draw period, new rate schedule, new credit limit.
How it helps
- New draw period: gets you another 5–10 years (typical) of the flexible draw/interest-only phase.
- Lower near-term payments: if the new HELOC offers interest-only payments during the draw period, monthly cash outflow may remain low.
- Flexibility: you can borrow, repay, and borrow again during the draw period.
- Potentially a lower rate: if market rates or your credit have improved, you might get better pricing.
Risks / tradeoffs
- Variable rate remains: most HELOCs are variable; you’re still exposed to rate increases.
- Payment shock later: you may again face a jump when the draw period ends unless you convert or refinance again.
- Cycle risk: repeatedly extending HELOCs can keep you in long-term revolving debt.
Who it’s best for: homeowners who value flexibility, expect to need continuing access to funds, and want to avoid large immediate payments.
Steps / checklist
- Shop multiple HELOC offers (rate index + margin matter).
- Compare draw period length and repayment terms.
- Check fees (application, appraisal, closing) and total cost.
- Apply and request an updated credit decision/appraisal.
2) Convert HELOC into a home equity loan (fixed-rate, lump-sum)
What it is: replace the HELOC with a fixed-rate, fixed-term home equity loan (sometimes called a second mortgage). You get the outstanding balance as a single loan with predictable payments.
How it helps
- Fixed interest & payment: eliminates variable-rate exposure; easier budgeting.
- Predictability: no surprise increases when the draw period ends.
- Good for long-term paydown: you can choose a repayment term that suits your budget.
Risks / tradeoffs
- Less flexible: once converted, you can’t re-borrow unless you open a new HELOC.
- Possibly higher monthly payment: when switching from interest-only to principal+interest, payments commonly rise.
- Closing costs: expect origination fees, maybe appraisal and title charges.
Who it’s best for: homeowners who want certainty and who plan to pay down the balance steadily.
Illustrative example:
Suppose HELOC balance = $50,000, current interest-only payment at 5% = $50,000×0.05/12 = $208.33/month.
If you convert to a 10-year fixed home-equity loan at 5% annual, monthly payment becomes ≈ $530.33/month (principal + interest). That’s a big jump, but it eliminates future rate risk and amortizes principal.
3) Cash-out refinance (roll HELOC into your primary mortgage)
What it is: refinance your first mortgage for a larger amount, use the extra cash to pay off the HELOC. You end up with a single mortgage payment.
How it helps
- Single payment: simplifies finances by combining first mortgage + HELOC into one loan.
- Often lower rate: first-mortgage rates are usually lower than HELOC rates; locking into a long-term fixed mortgage can reduce rate risk.
- Potentially access more funds: if you borrow more against equity, you can pay off other high-interest debts.
Risks / tradeoffs
- Closing costs are higher: mortgage refi costs (2–5% of loan) can be substantial.
- Longer term: you may extend repayment over another 15–30 years, increasing total interest paid.
- Risk to home if you default: you’ve consolidated debt into the mortgage secured by your house.
Who it’s best for: homeowners who want lower rate + fixed payment, and who plan to stay in the home long enough to justify closing costs.
Quick math for break-even: If refi costs = $3,000 and you save $150/month in cash flow, break-even = $3,000 / $150 = 20 months.
4) Fixed-rate conversion within the same HELOC (partial or full conversion)
What it is: some HELOC contracts let you convert part or all of the outstanding balance to a fixed-rate tranche without taking a new loan.
How it helps
- No full refinance needed: cheaper and faster than a full cash-out or new mortgage.
- Stability for converted portion: locks some balance into a fixed payment while retaining flexibility for the remaining line.
- Lower costs: limited or no closing costs compared with a mortgage refi.
Risks / tradeoffs
- Not universally available: depends on lender terms and the original HELOC product.
- Partial only sometimes: lenders may only let you convert a portion of the balance.
- Fixed rate may be slightly higher than market fixed loans: because lender is protecting a flexible product.
Who it’s best for: borrowers who want to lock in certainty for part of their balance but still keep some revolving access.
Practical tip: ask your servicer if they offer a “fixed conversion” option, and request the conversion pricing terms in writing.
5) Use a personal loan to pay off HELOC
What it is: take an unsecured personal loan (fixed term, fixed rate) and use it to pay down or fully pay off the HELOC.
How it helps
- No collateral: your house isn’t on the line (no foreclosure risk tied to this loan).
- Fixed monthly payments: easier budgeting, predictable term.
- Fast process: personal loans often have quicker approvals and no appraisal.
Risks / tradeoffs
- Higher interest rates: unsecured loan rates are generally higher than mortgage-secured rates, especially if credit score is anything below excellent.
- Best for small balances: for large balances the rate difference will usually make this unattractive.
Who it’s best for: borrowers with modest HELOC balances and good credit who prefer not to secure additional debt with their home.
When it can make sense: if you have, say, a $5,000–$20,000 balance and qualify for a low fixed personal-loan rate, the simplicity and speed can outweigh the higher rate.
6) Balance transfer credit card (for small HELOC balances only)
What it is: move a small HELOC balance to a credit card offering a 0% introductory APR on balance transfers for 12–18 months.
How it helps
- 0% interest temporarily: you can pay down principal faster without interest during the promotional window.
- Low upfront cost: usually smaller fees than a mortgage refi.
Risks / tradeoffs
- Short runway: you must pay off before the promo ends or face high post-promo APRs.
- Credit utilization hit: a large balance on a credit card can harm your credit score if utilization shoots up.
- Not for large balances: cards often have lower limits than HELOCs.
Who it’s best for: borrowers with small balances (< ~$10K—$15K depending on card limits) and a concrete payoff plan within the promo period.
Practical caution: read the balance-transfer fee (often 3–5%) and the standard APR that applies after the promo.
What Are the Requirements for a HELOC Refinance?
Lenders vary, but typical underwriting checks include:
- Credit score: commonly 620–700+ minimum; higher scores get better rates.
- Home equity: lenders often want at least 15–20% equity left in the property after the new loan (combined loan-to-value, CLTV).
- Debt-to-income ratio (DTI): usually under ~43–45%, though some lenders may be more flexible.
- Stable income/employment: recent pay stubs, W-2s, or tax returns may be required.
- On-time payment history: recent late mortgage or HELOC payments reduce approval odds.
- Property appraisal: lenders may require one to confirm the home value (exceptions exist).
Tip: CLTV = (existing mortgage balance + new HELOC or refi amount) ÷ home appraised value. Lenders use CLTV to set limits.
What to Consider Before Refinancing a Home Equity Line of Credit (HELOC)
Lender terms: watch for early repayment fees, inactivity fees, or minimum draw requirements on new HELOCs.
Total cost of refinance: include origination fees, appraisal, title, recording, and any early-termination or prepayment penalties on the old HELOC.
Your goal: lower monthly payments, reduce total interest, lock rates, consolidate debt, or access cash — be explicit.
Loan term impact: a longer loan can drop payments but increase lifetime interest.
Rate choice: fixed vs. variable — choose stability or flexibility based on your risk tolerance and rate outlook.
Break-even analysis: how long until savings offset costs? (Example: $3,000 cost ÷ $150 monthly savings = 20 months.)
Planned stay in the house: if you expect to sell soon, high closing costs may not be worthwhile.
Tax implications: interest deductibility rules have changed; consult a tax pro about deductibility for home equity debt.
Prepayment penalties: check if your current HELOC has fees to close it early.
Benefits of Refinancing a Home Equity Line of Credit (HELOC)
1. Lower monthly payments
Refinancing often reduces what you pay each month.
2. Fixed-rate stability
Converting to fixed rate protects you from market volatility.
3. Avoid large payment increases
A refinance helps prevent payment shock when the draw period ends.
4. Consolidate multiple loans
Combine your mortgage + HELOC into one payment.
5. Improved financial flexibility
Refinancing gives you more control over your money.
Drawbacks of Refinancing a Home Equity Line of Credit (HELOC)
1. Closing costs
You may pay 2–5% of the loan amount in fees.
2. You may restart the loan timeline
Extending your loan can increase overall interest costs.
3. Strict requirements
Low credit or limited equity may make it difficult to refinance.
4. Long-term cost may increase
Even if monthly payments decrease, total interest may rise.
5. Risk of losing your home
Any home-secured loan poses foreclosure risk if payments are missed.
Alternatives to Refinancing a Home Equity Line of Credit (HELOC)
If refinancing doesn’t work for you, consider:
1. Loan Modification
Ask your lender to lower the rate or extend the term.
2. Extra Payments
Paying more toward principal reduces total interest.
3. Pay Down with Savings
Using savings can lower your HELOC balance quickly.
4. Convert part of the HELOC to a fixed rate
If available, this avoids full refinancing.
5. Debt Consolidation Loan
Move the HELOC balance to a lower-rate personal loan.
FAQs
1. Can I Refinance a HELOC with the Same Lender?
Yes, though it’s smart to compare offers from multiple lenders.
2. Will Refinancing Affect My Credit Score?
A hard inquiry may cause a small dip, but good repayment history will raise your score over time.
3. Is Refinancing Worth it?
It’s worth it if it lowers your interest, reduces payments, or avoids payment shock.
4. How Long Does the Process Take?
Usually 2–6 weeks depending on lender documentation and appraisal.
5. Can I Refinance a HELOC During Repayment Period?
Yes, and many people do it specifically to avoid high payments.
Conclusion
Refinancing a HELOC can be a powerful financial move—especially as your draw period ends or interest rates rise. Whether you want lower monthly payments, a fixed interest rate, more predictability, or a chance to consolidate debts, refinancing offers several flexible paths. By understanding your options, eligibility requirements, long-term goals, and potential costs, you can choose a refinance strategy that supports your financial health.
