mortgage & home loan refinance | vase at home

Refinancing Your Home Equity Line of Credit

mortgage 13

Updated: Oct 23, 2014

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.
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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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  • PF
    Jun, 2014
    Patty
    My house was paid off, I have an equity line of Credit which matured, I want to renew it. Excellent credit, debt to income fine, appraisal 140 line of credit 75. I was refused the renewal, but told would have to put on 15 year payout. Wondering why? I was approved for payout and refused equity line? Was it age I am 67.
    0 Votes

    • BA
      Jun, 2014
      Bill
      It could be the lender changed their general policy on HELOCs in some way. The best way to find out why your lender told you what they did is to ask them on what basis they made their decision. You can also speak with other lenders, to see if someone else will work with you on the terms you seek.
      0 Votes

  • JH
    Jun, 2014
    Jim
    I have a first mortgage (ARM 2.75% 231,000) a second mortgage (HELOC 8.8% 113,000). My home is currently valued at 280k. The HELOC will mature in 2016 with higher payments of course. What are my options to lower my monthly payments? Can I lower this HELOC rate, combine the two, refinance etc?
    0 Votes

    • BA
      Jun, 2014
      Bill
      You don't have a lot of options, unfortunately, when it comes to refinancing a second mortgage on an underwater home. Speaking with your lender and trying to modify the loan is your best bet, though there is no guarantee that the lender will work with you. It is not very likely that the lender will pursue a foreclosure when it would collect on only half of what is owed were the home to sell for what it is worth, but anything is possible.

      You may have to show that you can't afford to pay as agreed to get them to cooperate.
      0 Votes

  • JD
    Apr, 2014
    Jimmy
    I refinanced last July 2013 to a 15 year fixed at 2.875% An excellent rate. However, I have a HELOC as well that matures in 2016. The rate on the HELOC is currently at prime - 1 1/4. It's been at 2% for about 3+ years now which is awesome. However, its also been frozen since 2009. I would have preferred to add to my first mortgage during the REFI last year but I wouldn't have been able to get that good of a rate. My question is, should I just wait until its close to 2016 to refi the HELOC or start the process now?
    0 Votes

    • BA
      May, 2014
      Bill
      Your refinance rate on your original loan is excellent and by taking a 15-year loan you will build equity in your house. (Did you take a HARP loan?)

      Regarding your HELOC that expires in 2016, I would recommend that you speak to your lender and review your situation. Find out the terms for extending the HELOC.

      Since your HELOC is frozen, make sure to find out your options for turning the HELOC into a regular mortgage. Although this most likely will have a higher interest rate, you will gain by paying off your mortgage. If you are interested in having low initial rates, then ask for an Adjustable Rate Mortgage option.
      0 Votes

  • QN
    Feb, 2014
    Quy
    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
    0 Votes

    • BA
      Feb, 2014
      Bill
      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).
      0 Votes

  • CV
    Jan, 2014
    Cs
    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..
    0 Votes

    • BA
      Jan, 2014
      Bill
      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.
      0 Votes