How to get rid of a home equity line of credit

You opened a home equity line of credit for a reason, and now that reason may have changed. The draw period may be over and payments are about to increase. You may be preparing to sell. A variable rate may have become harder to manage. Whatever brought you here, several paths may be available if you want to get rid of a HELOC.

1. Settle the balance

One way to get rid of a home equity line of credit is to settle your outstanding balance in full. Once the balance reaches zero, you can contact your lender in writing to request account closure. 

Tip: A zero balance during the draw period does not automatically close the line; a written closure request to your lender is typically the right step.

Review your HELOC agreement for prepayment penalties if you plan to pay it off early. A prepayment penalty is a fee some lenders charge when you settle the balance before the term ends, often within the first few years. Early closure fees are sometimes separate from prepayment penalties, so review both items in your agreement.

You might pay a HELOC off early with a lump sum if you have the cash to do so, or by adding a little extra to your monthly payments. A debt payoff calculator may help you map out how long it could take to bring down the balance and what the total cost might be like under different payment scenarios.

2. Use the 3-day rescission rule

If you were just approved for a HELOC and changed your mind, you may be able to cancel it using the three-day rule. 

Under the Truth in Lending Act (a federal consumer protection law), you have three business days after you close, to cancel a HELOC secured by your primary residence, for any reason. You must notify your lender in writing before midnight on the third business day. After the lender receives your written notice, it's required to return all fees you paid to open the account within 20 calendar days.

Saturdays are counted as business days for this purpose; Sundays and legal public holidays typically are not. 

3. Roll your HELOC into a new mortgage

Another way to get rid of a HELOC is to replace both your first mortgage, if you still have one, and your HELOC with a single new loan. That's how refinancing works in a nutshell. Refinancing gives you one monthly payment, at a single interest rate, rather than two separate debts.

How a refinance is structured depends on your situation. If your HELOC carries a balance and the new loan amount exceeds what you owe on your first mortgage alone, your lender may treat it as a cash-out refinance. A cash-out refinance is a new mortgage with a total loan amount higher than what you currently owe; the difference is paid to you at closing. 

If you combine both loans without additional funds, your lender may treat it as a rate-and-term refinance. A rate-and-term refinance replaces your existing mortgage with a new one at a different interest rate or repayment terms, with no extra cash beyond what covers closing costs.

Closing costs typically apply to both structures. Your eligibility for either depends on the equity you have in your home, your credit profile, and current interest rates. You can request rate quotes from multiple lenders to see what you might pay to refinance a mortgage and HELOC together. 

4. Use a personal loan to clear the balance

If your HELOC balance is small enough, a personal loan for debt consolidation could clear it. A personal loan is a one-time payment that you can use for virtually any purpose. You don't need to secure the loan with your home, the way you do with a HELOC. 

You might use a personal loan to get rid of a HELOC if you qualify for a lower rate than what you're paying to your line of credit, or if you want to switch a variable-rate debt to a fixed-rate. HELOCs may have variable rates that move up or down over time, which can affect your payments. Personal loan rates are usually fixed. 

Your ability to qualify for the lowest rates on a personal loan typically hinges on your credit scores. Lenders also consider your income and how much debt you have to approve you. 

5. Sell your home

If you sell the property, you may not need to take additional steps to get rid of a HELOC. The proceeds from the sale could be enough to pay off your first mortgage and your HELOC, while still leaving you with money left over. A professional appraisal can give you an idea of what your home might sell for. 

An important fact to note is that if, for any reason, you don't make enough from the sale to cover your HELOC payoff you'll have to come up with the difference yourself. Your lender won't release the lien on the home until it's paid. 

What to check before you act

Your HELOC agreement is the starting point. Review this document to understand what you might owe for:

• Prepayment penalties: A fee for settling the balance before the term ends, often within the first few years

• Early closure fees: A separate charge for closing the account within a set period after opening

• Closing costs: If refinancing, factor in origination fees and other costs associated with the new loan

Check your current HELOC balance to assess whether you could pay off the amount off from your savings or monthly cash flow. If you're thinking of applying for a personal loan or refinance loan, review your credit scores, income, and debt to get a better idea of what you might qualify for. 

What happens to your credit when you close a HELOC

When you close a HELOC, your total available revolving credit decreases. That could affect your credit utilization ratio, which is the percentage of available credit you are currently using. Credit utilization is one of several factors that affects how credit scores are calculated. The impact varies depending on the type of credit score and your overall credit profile, but any dips are usually temporary and it’s possible to gain lost points back over time.

Getting rid of a HELOC is more straightforward than it might seem. Whether you pay it off, refinance, or sell, you have real options, and knowing which one fits your situation puts you in a stronger position to move forward.