How to refinance a HELOC

The way to refinance a home equity line of credit (HELOC) is to replace it with a new loan or credit line. This could involve opening a new HELOC, converting the balance to a fixed-rate loan, or refinancing into a new mortgage. The best HELOC refinance options depend on your rate, balance, and repayment timeline.

Can you refinance a HELOC?

Yes, you can generally refinance a HELOC, as long as you have enough home equity and meet lender requirements. Refinancing replaces your existing HELOC with a new loan or credit line. Different HELOC refinance options could change the interest rate, payment structure, or repayment timeline.

Just like other types of loans, you have to go through an application and underwriting process to refinance a HELOC. Approval for a HELOC isn’t automatic. Lenders will ask for information about your credit score, home equity amount, and other details about your personal finances before they decide whether to offer you any HELOC refinance options. 

When refinancing a HELOC could make sense

Choosing to refinance a HELOC can be the right decision in some situations: 

Variable rate has increased 

If the interest rate on your HELOC has gone up, this could be a good reason to shop around for lower rates with a HELOC refinance. Getting a lower interest rate on a refinanced HELOC might save you money on monthly payments, or on total interest costs over the life of the repayment.  

Draw period is ending

Every HELOC has a draw period, which is a certain amount of time when you’re allowed to draw money from the line of credit. Typical draw periods are five to 10 years. If you have an existing HELOC with a draw period that is ending, now could be a good time to refinance—especially if interest rates are lower than when you opened your HELOC. 

Payment about to shift to interest plus principal

If you were making interest-only payments on your HELOC your repayment period monthly payment will be higher. If it’s uncomfortable for your budget, refinancing could let you stretch out the loan term and possibly lower your monthly payment. This can free up extra cash and give you more breathing room in your budget. Keep in mind the trade-offs. Taking longer to repay the borrowed money means you’ll pay more in interest. 

HELOC refinance options explained

Whether you want lower monthly payments, a longer repayment term, or more cash out of your home equity, refinancing your HELOC offers a few ways to achieve those goals. Here are three typical options for how to refinance a HELOC.  

Option 1: Refinance into a new HELOC

As long as you qualify based on credit score and other factors, you can refinance your existing HELOC into a new HELOC. If the new HELOC has a lower interest rate, this could help you save money on interest or reduce your monthly payments. 

Keep in mind that when you refinance into a new HELOC, the new line of credit will often require you to reset your draw period and repayment terms. This could be a good thing if you want more time to borrow from your home equity and repay the borrowed money. 

Note: Not all lenders reset draw periods. Some lenders will require you to keep your current draw period and repayment period. Confirm whether or not a new draw period is available, if this is important to your financial goals for the refinanced HELOC. 

Refinancing into a new HELOC will get you a variable-rate line of credit unless you seek out a fixed-rate HELOC.

Option 2: Refinance into a fixed-rate home equity loan

If you’re trying to decide between a HELOC vs. home equity loan, refinancing a HELOC into a home equity loan could offer benefits. Some lenders call this type of refinance a conversion, because it converts the HELOC balance to fixed payments with a home equity loan. 

One benefit of refinancing into a fixed-rate loan is that it gives you a predictable payoff schedule, and you know what the interest rate will be. You could refinance your existing variable-rate HELOC into a new Achieve Loans fixed-rate HELOC, which combines the benefits of a traditional home equity loan and a HELOC:

• Fixed interest rate 

• Ability to borrow repeatedly for a period of time

Option 3: Cash-out refinance

A cash-out refinance is a new mortgage loan that replaces your existing first mortgage and your existing HELOC. You could also get additional cash to spend if you qualify based on your credit score, loan-to-value ratio, and other factors.

A cashout refinance is likely to impact your current mortgage rate. Consider this strategy if you can qualify for an interest rate now that’s lower than the rate on your current mortgage.  

How to refinance a HELOC, step by step

If you want to refinance your HELOC, start by following these steps: 

1. Review your current HELOC terms. Do you want a lower interest rate, lower monthly payments, or a longer repayment term? Get clear about your financial goals before you do a HELOC refinance. 

2. Estimate your remaining equity. The value of your home and how much you owe on your first mortgage and existing HELOC will help decide if you qualify for a HELOC refinance. 

3. Compare refinance paths. Every option has tradeoffs, whether you want a new HELOC, a fixed-rate home equity loan with predictable payments, or a cash-out refinance with a new first mortgage. 

4. Apply and complete underwriting. Refinancing your HELOC requires an application process to show lenders that you’re a creditworthy borrower. Some lenders have a faster application process than others. The exact application timeline can vary widely depending on the lender and your state.  

5. Pay off the existing HELOC. If you get approved, congratulations! Your new refinanced HELOC, new home equity loan, or new mortgage will pay off your existing HELOC. 

Does refinancing a HELOC affect your credit?

Just like applying for other personal loans, credit cards, or mortgages, a HELOC refinance could affect your credit score. Applying for refinancing a HELOC typically involves a hard credit check that can temporarily reduce your credit score by a few points. A refinanced HELOC could also affect your credit because it lowers your average account age. Paying on time every month helps build a positive payment history, which is an important step in building and maintaining good credit. 

Alternatives to refinancing a HELOC

If you don’t want to take on more debt or you prefer to get out of debt faster, there are a few alternatives to refinancing a HELOC: 

• Pay down balance faster. Make a debt payoff plan to pay down your HELOC balance. The Achieve GOOD app can help. 

• Convert part of the balance. If your lender allows it, you might be able to convert part of your HELOC balance to a fixed-rate home equity loan at a lower rate or lower payment—without refinancing the entire HELOC.

• Personal loan. A personal loan for debt consolidation could be another option to pay off your existing HELOC balance. Since personal loans are unsecured, you might pay a higher rate. This might not be a better deal than just paying off your existing HELOC faster.