Can You Refinance a Home Equity Loan or HELOC?

With second mortgages like home equity loans and home equity lines of credit (HELOCs) growing in popularity lately, I thought it would be wise to talk about next steps.

For example, what happens if you want to repay the loan, change loan plans or get a lower rate?

However, just like a first mortgage, there are many options for refinancing HELOCs and home loans.

In fact, you can even pay off a HELOC or home equity loan with your first mortgage.

Although with interest rates on existing home loans so cheap right now, that probably won’t be a move!

Can You Refinance a Home Equity Loan?

Yes. Similar to the original mortgage, you can refinance the home loan to take advantage of the lower rate.

Or to get a larger loan amount, perhaps because you need to borrow more money for projects or additional expenses.

You can also refinance the loan if you want a different type of loan, or consolidate the loan into an original loan.

It’s also possible to lower your monthly payment by extending the term of the loan, assuming you’re okay with paying more interest.

Conversely, it is possible to refinance a home equity loan into a short-term loan to reduce interest costs and pay it off faster.

Long story short, you have many options assuming you qualify and are eligible for a new loan.

See my example above, where an existing home equity loan is refinanced into a new, larger balance.

The monthly payment increases as you borrow twice, but the rate decreases slightly because the rates have decreased since the time the loan was first issued (hypothetical scenario).

Note that you do not need to borrow more when refinancing. you can simply make money at a lower rate if available. Either in the short or long term.

Can You Refinance a Home Equity Line of Credit?

Yes, you can also pay for a home equity line of credit as well. Some banks will allow you to do a HELOC refinance at home through a structured process.

So it can be very easy and fast, assuming you stay with the same bank. And doing so will allow you to borrow more (a bigger line of credit) and get a brand new term, which is 10 years.

For example, if you’ve had your HELOC for nine years and it’s about to expire, you can refinance it and extend the term for another decade.

One caveat to this is that banks will often require you to pay principal and interest each month, instead of just interest.

But if you refinance your HELOC through a different bank or lender, you may be able to get a new term that requires only interest payments.

And you should shop around anyway to see if the foreign bank/lender has a better rate than what your current bank is offering.

Just make sure you pay attention to all terms, closing costs, early closing rules, etc.

In the example above, the old HELOC is refinanced with a new HELOC, with a new 10-year interest-only term and a lower rate (thanks to better margins!) from another bank.

The monthly payment goes up by about $150, but now you have another $50k available and can pay interest only again.

Also, you don’t need to borrow more when refinancing. you can simply make money at a lower rate if available. Or extend your loan term and/or interest-only period.

Can you pay off a HELOC with a Home Equity loan? Or Vice Versa?

The short answer is yes. If you have a HELOC and are looking for a home equity loan, you can pay off the HELOC with a home equity loan.

This way you can lock in a fixed interest rate if you are worried that interest rates will rise.

The main downside to a HELOC is that the interest rate is variable (tied to the principal amount), so the peace of mind that comes with a limited home equity loan may be beneficial to some.

The opposite is also true if interest rates drop and you want a HELOC option.

You can pay off a home loan with a HELOC, which may have a lower interest rate that may drop even lower, if the Fed is expected to lower rates in the future.

In addition, you will have a line of credit that may be drawn on beyond the paid balance. And you will only be able to pay interest.

For example, if you paid off a $50,000 mortgage with a $100,000 HELOC line, you would have another $50,000 available.

You can borrow more if needed and continue to borrow during the drawdown period, with interest-only payments if you wish.

So you’ll get more flexibility there, but remember that HELOC rates can go up too!

The only problem with this arrangement is whether the lender will allow you to pay off the home equity loan and HELOC at closing. Be sure to ask before proceeding.

How Can I Lower My Home Equity Loan Ratio?

If you’re looking for a lower interest rate for your home loan or HELOC, you’ll want to look into refinancing.

Examples from above include taking out larger loan amounts to borrow more.

But it is also possible to refinance one of these types of loans without borrowing more, just to get help paying off.

And it would make sense if interest rates improved since you first took out the loan.

For example, if you got a home equity loan when the rates were 10%, and they have since dropped to 7%, you could save a good amount of money.

In my example above, it’s about $100 per month. It’s not too insulting, even though you’re resetting the clock for a new 20-year term.

If you have a HELOC, it is likely to be a variable rate loan and the rate may automatically decrease over time if the rates improve due to the lower principal rate.

In this case, you may not need a refund to use the lower rate.

How Much Does it Cost to Refinance a Home Equity Loan?

Like everything else, it depends. You may be subject to a down payment on the loan, usually based on a percentage.

For example, if you refinance a $50,000 home loan and there is a 1% fee, it would be $500. A 2% fee would be $1,000.

But it’s also possible to get refinanced with a new home equity loan (or line) with no closing costs or fees.

However, the catch is that interest rates will likely be higher, all else being equal. But if you shop around enough, you may be able to get a lower price with no fees.

This is all the more reason to collect multiple quotes from several banks and lenders to check what’s available.

You Can Also Pay Off a HELOC or Home Equity Loan with First Mortgage Refinancing

Another way to pay off a HELOC or home equity loan is to refinance your original loan.

So we know that you can refinance an existing HELOC with another HELOC, or an existing home equity loan with a new home equity loan.

Alternatively, you can pay off one of these second mortgages with your first mortgage and consolidate the two loans into one loan.

Today this doesn’t make a lot of sense in most cases because most homeowners have very low initial mortgages. And if you redo, you lose that lower level.

For example, if you have a $300,000 original loan at 4% and a $75,000 HELOC, you could consolidate the loan into a single loan for $375,000.

However, the combined loan amount can result in a higher loan-to-value (LTV) ratio. But if you have a lot of home equity, it may not be a problem.

Say the property is worth $500,000. The new LTV will be 75%, which is the lowest LTV and will not be subject to multiple loan level pricing adjustments (LLPAs).

Another thing to consider is that if the second refinance is paid off with the original mortgage, it will be considered a cash-out refinance, even if you don’t take out the extra money, assuming it wasn’t a purchase. second mortgage.

So price changes that effect refinancing through cash outflows will come into play, potentially leading to higher mortgages, all else being equal.

To sum things up, home equity loans and lines aren’t much different than conventional loans, they’re just a second mortgage (assuming you don’t have a first mortgage).

This means that the same options are often available to refinance, change loan plans, or pay off at a different rate.

There are also options for getting a fixed rate HELOC or using a fixed interest rate on your line of credit. So there are differences between brands these days.

Be sure to consider and understand all of your options if you have one of these loans, or are considering applying for one.

Read on: Cash Out vs. HELOC vs. Home Equity Loan

Before creating this site, I worked as an account manager for a real estate broker in Los Angeles. My experiences in the early 2000s inspired me to start writing about mortgages 18 years ago to help prospective (and existing) home buyers better navigate the mortgage process. Follow me on Twitter for the latest.

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