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Refinancing Your Home Equity Line of Credit

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HIGHLIGHTS
  • There are many reasons to refinance a HELOC.
  • Make sure that you understand the pay off requirements of your HELOC.
  • Shop around and compare fees and true lifetime cost of any loan before refinancing.

Refinancing Your Home Equity Line of Credit

These days, borrowers use Home Equity Lines of Credit (HELOCs) to assist with all sorts of expenses, given the flexible nature of this home loan product. Some of the most popular reasons for taking out a HELOC are college tuition, medical expenses, home remodeling, medical bills and debt consolidation. Because the interest is tax-deductible, a Home Equity Lines of Credit can be a very attractive option when you need to borrow money, or to just have there for peace of mind and for financial security. You may also take out a HELOC at the same time that you secure your first mortgage when buying a home in order to finance a greater percentage of what the home is worth without the need for mortgage insurance.

If you are seeking lenders to help you refinance your HELOC, you can always apply with our pre-screened refinance lenders to see if there is a loan product that meets your needs.

Whatever the circumstances were when you took out your Home Equity Lines of Credit, the time may come when you decide to refinance your HELOC or refinance a home equity loan. Make sure you have clear goals as to why you are refinancing, and be certain those goals can be met by the program you choose.  Typically, people look to refinance a HELOC to lower the rate, but sometimes getting a larger line of credit or even extinguishing the loan all together can be motivations to refinance. Some Home Equity Lines of Credit come with a lump-sum balloon payment that is required at some specified time. Refinancing to avoid having to come up with the lump-sum is another reason to refinance.

One reason to refinance a HELOC, and the first one that comes to most people’s minds, is the interest rate. This may or may not be a good reason depending on a few factors. Your HELOC carries an adjustable rate; therefore if rates go down, so should your payment amount. If rates are steadily rising, however, and especially if they’re expected to continue to rise, refinancing your HELOC back into your first mortgage, or into a closed-end second mortgage with a fixed rate, might make the most sense.

If you originally took out your HELOC for a project or expense such as college tuition or home remodeling and that project is now completed, you may just be looking to refinance your first mortgage and your HELOC into one loan with a low fixed rate to avoid the potential for a rising rate and increasing payments in the future. Having a single loan with a fixed rate offers you the satisfaction of knowing that your payment amount will never go up.

Conversely, if you’ve come to the conclusion that you need to be able to draw more from your Home Equity Lines of Credit than you’d first thought, you can refinance it or, more correctly speaking, take out a new HELOC for a greater value. Keep in mind that you’ll have to pay additional closing costs, and that unless you can start making much larger payments, it will take you longer to pay back the larger Home Equity Lines of Credit amount. You should carefully consider your needs and options before opting for a HELOC with a larger credit line.

When the time comes to refinance your HELOC, don’t hesitate to consult with a financial planner or a loan officer. These professionals can advise you on whether your reasoning is financially sound and about the kind of program you should choose to meet the needs and goals you’re setting for yourself.

Comments (20)


Carina V.
Plainfield Twp, PA  |  October 17, 2011
Hi, I have a mortgage that I owe 55,000 and a line of credit that is about $94,000. My home is worth about $300,000. The line of credit is ballooning on November 1st. They are asking for a 8.75% interest and re-payment. I have excellent credit, but my income has changed. My debt to income ratio is not enough to re-finance. I'm getting help from my family to pay the bills now. I have never been late and always pay my bills. I can't get get anyone to co-sign for me since my family lives abroad. Both loans are with BOA. When I called them they told me that nothing can be done until I default. I also got a letter saying that they sold my line of credit debt to another bank. I'm going to have to pay about $600.00 more a month now. What can I do? Is there any banks that can help me? I'm desperate!!!!
Bills.com
October 17, 2011
Your message lacks enough facts for me to give you guidance on your options. Based on what little I know, the most obvious option is to sell the property. Another is to contact NACA and see if this organization can help you refinance the loans.
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Kenny B.
Merritt Island, FL  |  January 10, 2012
I had a equity line of credit with a bank that was taken over by anothert bank. That bank recently notified me that the line of credit was reaching maturity in two months, and in two months the balanced owed was due. The balanced owed is right around 19,000 dollars. I have already paid the first mortage off. I asked if they could just modify the equity line to give me at least a few years to pay it off, they said I must go thru some special government program for a hardship. I had to provide them with all kinds of hardship paperwork, Both me and my wife have jobs, have no problems paying for a mortgage, but they said since I can't pay the entire 19,000 dollars now that is a hardship. That was almost 6 months ago and I am still waiting for them to give me an answer, they stopped accepting payments and are starting to send me pre foreclosure notices. With all that I think now I would have a problem finding another mortage company to give me a loan. I also didn't have insurance on the home because it was paid off, and the house is only a couple miles from the Ocean in Florida all the Insurance companies drop everyone because of those hurricanes about five years ago. I don't know what to do.
Bills.com
January 12, 2012
You do not mention the value of the house, however it sounds like you have sufficient equity to refinance. Part of the problem is that lenders do not like to originate loans for such a small amount.

It certainly sounds as if the bank has been unfair and misleading. The hardship program does not really apply, if you have jobs and can afford the payment. However, a lender has no obligation to renew a loan or line of credit that comes due. I recommend that you gather all the documents and correspondence which you have between yourselves and the bank. Paperwork is important. You can then file a complaint with the Federal Reserve. Also, speak to a local lawyer to investigate any legal options open to you. In order to solve the money situation, either return to the original bank and suggest a payment plan, or speak to a local bank or credit union and see if they can offer you a loan. Explain to them the circumstances, and show them proof of your income, assets and credit report.
Bills.com
January 12, 2012
You did not mention today's market value of your property. I will assume it is worth more than $19,000. Talk to loan officers at local banks and credit unions and explain your situation. I imagine your credit score took a dive when you became delinquent on the loan payments. What is your spouse's credit score? Perhaps she qualifies for a mortgage.
Lisa W.
Port Republic, MD  |  September 30, 2011
Hi- I have a 158,867.97 HELOC with a periodic rate of 0.0086301% corresponding APR of 3.1500% The APR is 3.1068%. This is on an investment property. We also have a 30 year fixed 1st mortgage on the property in the amount of 139,787.00 with APR of 5.875. We collect rent of 1900.00 per month. The HELOC interest only payment is about 400.00 and the mortgage is about 1300.00 per month. Is there anyway to refi these into one loan and, if so, would it make sense to do so?
Bills.com
October 02, 2011
Without knowing what your property is worth and whether you meet the credit and income requirements that any lender demands, I can't say whether or not it makes sense. Given today's rates, I certainly recommend that you speak with some lenders to see what is possible.
Helen M.
Rancho Palos Verd, CA  |  September 27, 2011
My HELOC was taken out in 2003. I have read the note several times, but am still not clear on several issues. I haven't drawn the full amount. The LTV is less than 50% (1st and HELOC max combined), so no worries there. The terms are great. Interest only for 10 years at prime or less depending on the loan balance, then the loan converts to a 2nd payment stream, (amortized, I think) with the balance due in 2032. I believe the rate stays the same, which can adjust monthly based on Prime +/- margin. My concern is what happens in January 2013 when it converts to the second payment stream. I'm afraid to call and ask questions, because I don't want to raise red flags. I have never been late on the payments. Will the bank ask me to re-qualify? I will not be able to qualify. When I qualified the 1st time, it was just based on 'stated income' and property value. Can they call the loan? If the loan will just continue on without anything required on my part, I would like to draw more money out. Will that raise red flags?
Bills.com
September 28, 2011
Two contradictory responses to your message:
  1. Go ahead and telephone the mortgage servicer and ask your questions because the loan contract you signed binds both parties to its terms. The servicer cannot arbitrarily change the contract's terms, or make you requalify unless the contract states that it can when certain conditions occur. You have nothing to fear from the servicer's customer service representatives — they are there to help.
  2. Mortgage servicers will try to get away with whatever they can because they oftentimes do. Mortgage servicers have no reluctance to break contracts when it is convenient, and know that many homeowners lack the legal knowledge and resources to fight them when they violate the terms of the loan contracts they sign.

Take your loan contract to a lawyer in your state who has experience in either contract litigation or real estate law. Ask him or her to read your loan contract, and explain to you the terms and conditions of the loan, and what will happen in January 2013. If the servicer later violates the contract terms, you will have a relationship with an advocate in place who can level the playing field in your fight with the servicer.

Vicky B.
Phoenix, AZ  |  June 06, 2011
I have a heloc loan of 140K which matures in May 2014 (taken out in 2005 for mostly upgrades to the house). I have a first with a balance of 118K which I did a successful loan modification at the end of last summer. I'm current on all payments but am afraid of what could happen at the maturity of the heloc as it's a balloon payment. I will be a single mom at that time with no verifiable income. My roomate is currently helping me with the payments. I've read most of your articles and wondering if I should start to contact my bank (State Farm) now for a possible refinance (FHA short refi program)or best to wait out until 2014 and see what the changes are then? Any suggestions are appreciated. Thank you!
Bills.com
June 07, 2011
If you have income now, a good credit score now, and a low debt-to-income ratio now, consider refinancing now to a fixed-rate, no-balloon second. It is difficult to imagine circumstances that will cause interest rates to fall even further than they are now.

The wild card in your message is the certainty that you will have unverifiable income in 2014. Does that mean you will be paid under the table, or that your income will be sporadic or low? If you expect to be paid off the books in 2014, then by all means refinance now while (presumably) you are still on the books.
Irgal C.
Laguna Woods, CA  |  April 11, 2011
My 1st loan and HELOC is same landing company, can my lender force forclosure if my HELOC is in 6 months past due status? I live in CA. Thanks
Bills.com
April 11, 2011
Yes legally, but it may not make sense economically. See Can a Second Mortgage Holder Foreclose? to learn more. Ask any follow-up questions you may have on that page.
Mary C.
Colfax, CA  |  February 08, 2011
I have an Equity Line of Credit, and have tried to refinance my first and the Heloc. Unfortunately, because my home is under water 30,000 I'm stuck with the Heloc. When interest rates go up, and I'm afraid of inflation hitting. I may lose my home. Is there anything I can do to get a fixed rate on my Heloc? I have gone to the lender and they offered me a whopping 9% interest rate! I don't think so. Is there any lender anyone knows of that is refinancing Helocs.
Bills.com
February 09, 2011
When a home is underwater, lenders know that they have limited or no security, should you default on your loan. This makes it extremely difficult, if not impossible to refinance.

You may want to speak to your lenders about the FHA Short Refinance program, which is designed for homeowners that are underwater. The FHA Short Refinance requires your lenders to reduce the principal balance on your loan, which they may not be willing to do.

You are worried about inflation making it so that you can no longer make your required payments. That makes every dollar you have more precious. Maybe you can find ways to adjust your spending habits so that you could afford any expected hike in your payments. I recommend that you work on making a budget, if you have not done so already.
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Gina P.
Reno, NV  |  May 11, 2011
FHA Short Refi requires that mortgage lender write down a minimum of 10% to bring the loan's balance down to make FHA refi work. But most first lienholders won't drop their principal when there is a second mortgage. After all, the second mortgage lender received a higher interest rate because it understands it is in the riskier position. The second lien should write off most (if not all) of what it has coming before the first lender writes down anything. That's why these things don't work very often.
Parag S.
Bethlehem, KY  |  January 25, 2011
A HELOC allows people to withdraw money on a regular basis for a period of 10 years while paying only interest on the money, that is withdrawn, thus making it akin to using a credit card. At the end of the draw period the balance, that is yet to be repaid, gets transformed to a loan with a maturity period of 15 or 30 years
Bills.com
January 25, 2011
The draw period on a HELOC usually ranges from 5 to 10 years. You are correct that during that time that the borrower only is required to pay interest. Most HELOCs have a repayment period of 10 to 20 years, in my experience. During the repayment period, the borrower has to make payments on the principal, paying down the entire principal balance over the number of months in the repayment period. It can be the case that the whole HELOC balance needs to be repaid at the end of the draw period, making it so the borrower has to refinance, sell the home, or have some other way of paying off the balance. HELOC borrowers need to make sure that they understand exactly how and when they will be required to repay the loan.
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Angela W.
Clearwater, FL  |  August 03, 2011
My AmSouth bank extended to my a home line of credit in 2004, I was led to believe it was (I know I'm STUPID!) that would be used and to be paid by 2024. NOW, I find I have to repay 65,000 by Apr 2014! I can't eat or sleep as well you know,I as WE all, are not AT ALL in the income range as WAS! I am terrifid to even speak to my lender, (Now Regions) for fear to send up a red flag, that I can't pay in that time. I however, have excellent credit (so far) and need advice to approach refinace of this loan. I still have equity of approx. 40,000, and keeping my "head above water" so to speak. PLEASE, can you help me?
Bills.com
August 04, 2011
You should look at refinancing to pay off your HELOC, if you can qualify for a loan. I understand that your income has dropped and I don't know the value of your home, so these may be barriers to refinancing, but speak to some lenders to see. Look into FHA loans, if your LTV is high.

If refinancing is not an option and you can meet your current monthly payment, I don't see much benefit to speaking to your lender now. Perhaps your income will improve in the next few years or other circumstances will change.
Thanks for your feedback!

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