Refinancing Your Home Equity Line of Credit

mortgage 13
  • 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.

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Comments (52)

Quy N.
Gilbert, AZ  |  February 07, 2014
My house is paid off. I took HELOC on this house is $120,000. in 10/2005. Mature date will be next year 10/2015. There are 4 options from the bank: 1. Covert to a fixed rat and term option: 30 yrs, 15 yrs, 7yrs. The interest rate will be higher than variable rate. 2. Refinance to new home equity line of credit: a new 10 hear period 3. Refinance to new home equity loan: fixed rate and term. 4. Refinance to a new first mortgage: it's impossible because the market value is lower than my HELOC. Please explain and advise me about three options 1, 2, 3. Thanks. Quy
February 09, 2014
The best option for you would depend on your overall financial situation. If you are interested in paying off the loan, then your best option is to turn your HELOC into a regular mortgage. (I am not sure what the difference is between options 1 and 3 - they both seem to be turning your HELOC into a long term mortgage). Given today's low mortgage rates and the fact that you are underwater (so you can't know when you can sell the property) I would recommend that you look into a fixed rate mortgage for the shortest time that you find affordable. (One other point: I assume that your HELOC is the only mortgage and lien on the property).
Cs V.
January 03, 2014
I have two loans on a $700k mortgage. Property is worth $850k. First is conventional 30yr at 4.5% ($400k), Second is Heloc at 3% ($300k) both through Citimort/citibank. Post divorce I ended up with the payments and would like to remove my Ex from both loans. On the First, that is easily done with an assumption and a $900 fee. However Citi will not remove my Ex from the HELOC despite repeated letters and calls. I don't want a higher payment (combining into a Jumbo) and don't understand why I can't find a bank that will give me a new loan to payoff the stupid HELOC. I have excellent credit as well. What am I missing? Thanks in advance..
January 10, 2014
Ask a loan officer why you are being denied a refinance. Remember, it takes more than an excellent credit score to qualify for a loan. Your debt-to-income ratio and income history are key factors too.
Jason B.
October 30, 2013
It looks like I have my work cut-out for me!
Simon B.
Menlo Park, CA  |  October 30, 2013
I am in a similar situation. Thanks for the explanation.
Brat M.
San Jose, CA  |  October 09, 2013
I recently bought a condo and I have a mortgage loan of:
  • $202k - 30-yr fixed
  • HELOC for $40k - 30-yr fixed @ 5.8%

Are my interest rates high? Should I refinance? The HELOC has an early termination fee of $500. Please advise.
October 10, 2013
Loan interest rates vary over time due to market conditions, and also vary with the borrower's creditworthiness. If you have a low debt-to-income (DTI) ratio and a high credit score, you will be offered a lower interest rate than your next-door neighbor who has a high DTI and a low credit score.

The rate you mentioned for the HELOC is in the same ballpark as current HELOC rates. You didn't mention the rate on your first, so we can't say if you have a good rate.

Has your financial situation changed recently that would improve your creditworthiness? For example, has your income increased, or have negative items fallen off your credit report that would result in an increase in your FICO score? If the answer to either or both of these questions is yes, then shop for a refinance.
Kathy K.
Malvern, PA  |  March 12, 2013
I currently own my home with my ex-husband. I live in it and it will be titled in my name when the mortgage is paid per our divorce agreement. My ex is responsible for paying off the mortgage. The home is currently worth $450.000. We owe ~$80.000.00 on the primary mortgage scheduled to be paid off in 7 years. We also owe $80,000.00 on a HELOC. He wants to refinance and eliminate the HELOC but I would have to get a loan for my half or $40,000. What are my options? I work part time earning $14,000/year plus $30,000 in child support. I am married again but my husbands credit is horrible so this would need to be in just my name. My credit score is 760. Help!
March 13, 2013
No doubt you are familiar with the old saying, "The devil is in the details." Consult with a mortgage lender to learn if you qualify for a home loan. At first glance, the first question I would have is the duration of the child support. My second question would be to learn your debt-to-income ratio. A $44,000 income and 760 credit score are great starts, but what about your debt?
Don S.
Cliffside Park, NJ  |  February 24, 2013
Question re: refinancing HELOC. Obtained HELOC in 2003 for $212,000. At the time, property was valued at $250,000. No existing mortgage, already paid up previously. 10 yr draw period will end later this year, at which time 20 yr repayment period will begin. Currently, balance is $120,000. I wish to refinance HELOC with same bank, and have been approved for credit line of $160,000, based on the interim decline in value of the property. The bank requires that the original loan be paid off in full when new HELOC is activated. Furthermore, the funds from this payoff will be drawn directly from the new credit line. Thus, the new credit line will be immediately reduced by $120,000 in order to re-finance the first HELOC. This will leave me with considerably lower credit line than I was approved for. I was expecting that the original HELOC would remain open, and just continue into the repayment period, while the new line would be available as well, for the approved $160,000. However, bank tells me I cannot have two open HELOCs on the same property, therefore the first HELOC needs to be closed, AND the funds must come from the new line. Does this sound correct?
February 25, 2013
I understand that you had a HELOC for $212,000 of which you owe $120,000. Your bank approved a refinance of your current HELOC for $160,000. If that is the case, then yes it is natural that you would not have two HELOCs, rather the new one would be used to pay off the old HELOC. THat means the first $120,000 would be used to pay off the old HELOC and the remainder would be available as a line of credit.

Are you sure that you want to keep all of this as a line of credit? Maybe you should be looking to mix a traditional mortgage together with the HELOC, so that you can build up equity in your home.
Don S.
Cliffside Park, NJ  |  February 25, 2013
I took out a traditional 30 year mortgage when I originally acquired the property, and this was paid up in full several years ago. I have ongoing additional expenditures that I will need to make, and planned to use HELOC for to cover those. Unfortunately, with the reduced credit line remaining after the payoff of original loan, a refinanced HELOC will not be adequate for my needs.
Melissa J.
Center Moriches, NY  |  October 17, 2012
So, I feel as though I have been hit to the stomach. I have some questions. But first, here are the facts. We are in our home 7 years, and when we had it built, we, like many others, were told to do a piggy back loan, we did. We had our first mortgage of approximately 340K and a HELOC for 75K. About 2 years later when rates dropped, we refinanced with Teachers Federal Credit Union at a rate of 4.5, and redid our HELOC with citibank at prime minus 1.01. Well, now rates have dropped again, and we have paid virtually nothing down on the HELOC, so we went to another credit union that locked us in at a rate of 3.5, and was lumping together our first mortgage with Teachers and our HELOC with Citibnak, giving us a total mortgage with them of about 412K (with closing costs). To have that new refinance go through, with the HELOC paid off, we needed our home value to come in at 550K to have a 75% debt to value ratio. Well, it didn't come in at 550K, it came in at 500K. While it is great that we are not underwater on the house, I am sick because I am now stressing about this 75K HELOC with the prime rate. In 5 years, the prime rate could be 5%, and now my minimum payments are through the roof! My question is, what are my options? Can i refinance the 340K with this new credit union and then refinance the 75K HELOC to a lockled rate? DOes that even exist for a HELOC? For this new credit union to close on the refinance, I would need to bring tens of thousands of dollars or more to closing because it is over 75%, and that is not feasible. I don't know what to do. Mostly, because I do now know what options I have. Please help!
October 19, 2012
I understand you have two loans:
  1. First Mortgage of $340k with Teachers Credit Union
  2. Second Mortgage (HELOC) of $75K with Citibank.

Your options are rather limited due to the home's current value. It is unlikely that the new credit union will agree to refinance the first loan, because the CLTV (Combined Loan to Value ratio) will be too high. In addition you will need the approval of Citibank to subordinate their mortgage.

It seems as if the HELOC is your major problem. Besides the interest rate risk, you are also left with the possibility that you are not paying off the loan. I suggest that you speak to Citibank to see if you can switch your HELOC into a fixed-rate amortized loan. Even if your interest rate will be higher than today's low variable rate, you will have peace of mind that your loan will be paid off. Your second step is to follow home prices and see if refinancing will be feasible in the future.

Eddie P.
Youngsville, NC  |  September 21, 2012
My questions are concerning re-financing my HELOC into my first mortgage. I have no idea why we ended up with this "piggy-back loan" to begin with (other than the lender was a slime ball!!). I wanted to do an FHA loan, but for whatever reason they did a conventional and a HELOC. My husband and I have beyond excellent credit with scores in the 800s and absolutely NO credit card debt and only small loans on 2 vehicles (both under $10k with monthly payments around $200 for each interest rates around 3%). My husband makes roughly $125k a year gross and I make roughly $40k a year gross. We didn't want to have to make a huge downpayment, but we could have paid the 3.5% for FHA with cash no problem. They talked my husband into this HELOC crap and now I would like to refinance and either combine it with our first mortgage or at least make it a fixed rate mortgage at todays rates and refi the first mortgage at a lower rate. Personally, I just don't like making two payments a month and having these two huge debts over our heads. I'd rathe have one normal mortgage. Also I'm scared to death of when this HELOC comes due in 20 years... I know silly, but who knows what real estate will do in 20 years! Here are the numbers: the house originally cost us $189,500 in 2006. We currently owe $140,108 on the first fixed mortgage at 6.25% (this is why we want to refi this one to get a lower rate). We also owe $35,979 on the adjustable rate HELOC. So my questions are: 1) can we refi to a FHA loan? I can't figure out why not, but there has to be a reason they steered us away from that to begin with right. 2) the "online appraisal value" of our house is only about $165,000. This is completely inaccurate as we have replaced the water heater, have had professionally installed privacy fence, hot tub, granite counter tops, all new appliances through out and remodeled both bathrooms (paying cash for all of these items so we still have no other debts). Also all of the online appraisal tools have our house listed incorrectly as a 3 bedroom home with only 1785sq ft when it is definitely a 4 bedroom home and has roughly 1890 sq ft. (that is how it was appraised/listed, etc when we bought it. and really I can count I know we have 4 bedrooms and yes they all have closets). So by my calculations if we are able to refi our home would have to be worth roughly the $176,088 that we owe plus 3.5% either in increased equity or in cash (we could come up with the cash but I would rather use the equity if it exists to keep our cash liquid with us). Is this a correct assumption. I realize that we then need to come up with closing costs and need to watch out for points associated with the mortgage as well. So is anything I'm stating even possible or am I way off and we are just stuck with this stupid HELOC and a high rate on the 1st mortgage. I was thinking if nothing else would could at least refi the first fixed rate mortgage to a lower rate, right? Oh an my other question is how much typically does an appraisal cost and all of the closing costs that we are going to have to pay? Is it as much as our first closing costs because that was about $3,500 and that is totally acceptable to me, but much more than that and I'd have to weigh my options.
September 24, 2012
It is not clear that why your lender pushed you away from the FHA loan. It is important when shopping for mortgages to get different offers and compare them. However, it is often difficult to compare offers due to the different types of payment schedules, interest rates and fees.

In general you cannot refinance just a first mortgage. You need the cooperation of the second mortgage holder to subordinate their mortgage. If you first mortgage is a Fannie Mae or Freddie Mac loan - you can look it up on their sites - then you might be eligible for a HARP refinance loan. (This is an unlikely possibility, but worth looking into). However, even if this is the case, you can only refinance the first loan.

You are correct, that an online appraisal report is not accurate and certainly not used by lenders. You might want to speak to realtors in the area about the value of your house. However, in the bottom line, only an appraisal report or lender automated valuation model will determine the "real" value of the house for the purpose of getting a home. The value of your house is critical in terms of refinancing.

You can refinance using a FHA loan (with high upfront mortgage insurance premium fee and monthly insurance premiums). Still, interest rates are very low and you should save money by refinancing. Depending on your cash flow situation you might consider taking less than a 30-year loan. A 15-year loan would have principal and interest payments of only about $1237, but make sure you consider all of your housing expenses including the property insurance, property taxes and mortgage insurance.

I suggest that you get offers for a FHA loan and then get pre-approved for a certain amount of money (your whole balance) based on an appraisal report. There is no one standard closing cost. Your lender fees will be influenced by the interest rates. Third party fees vary and are similar to a purchase mortgage loan. Your appraisal report should run about $350, but does vary.

I recommend that you take advantage of mortgage provider network and get a mortgage quote. Good luck!
Julie B.
Centerville, MN  |  April 17, 2012
We bought our house at the height of the housing market and at the time were advised to do an interest only loan. We purchased the house for about $510,000. We've put an additional $115,000 into the home. We currently have a 7 year ARM that comes due in September for $408K and a HELOC for $103,000. Can we refinance our first mortgage for the $408K? We are terribly underwater on our property... we haven't had it appraised but even our tax records are saying it's now worth about $445K (obviously much less than what we owe). We are fine with our HELOC as we have a great rate but want to refinance our 7 year ARM so we get a fixed rate. A HELOC isn't a 2nd mortgage, is it? If our house gets appraised at $440K, will we need to pay down our HELOC or 1st mortgage?
April 17, 2012
See the article HARP 2.0 Mortgage Refinance Loan Program to learn if you are eligible for a refinance of your (presumably) upside-down first mortgage. A home equity line of credit is a gussied-up second mortgage. The HELOC lender will need to agree to resubordinate when you refinance, which should not be issue. The HELOC's resubordinating will not cause you to repay the loan. However, if it refuses to, which is unlikely but possible, you will face more difficult situation.
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