How to refinance a HELOC: what you need to know

Your HELOC probably made sense when you opened it. By now though, your needs or market conditions may have changed. It's worth checking to see if refinancing could give you a lower rate, steadier payments, or more time to repay. 

Refinancing a HELOC simply means swapping your current line of credit for a new loan, shaped around where things stand now. The right path depends on your balance, your equity, and the monthly payment you're aiming for. This guide to HELOC refinancing can help you pick the option that fits.

Can you refinance a HELOC?

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

Just like with other types of loans, you'll go through an application and underwriting process. Lenders typically review your credit score, your home equity, your debt-to-income (DTI) ratio (how much of your monthly income goes toward debt payments), and your overall financial picture before approving refinancing.

When refinancing a HELOC could make sense

A HELOC refinance could be the right move when it helps you reach a specific goal. Here are three common ones.

Replace a variable-rate HELOC with a fixed-rate HELOC

Most HELOCs carry a variable interest rate, so your rate could rise when the market shifts.  Refinancing to a fixed-rate loan could provide stability and predictability.

In particular, if rates have fallen since you got your HELOC, it might be a good time to switch to a lower fixed rate. A fixed-rate HELOC, like the one from Achieve Loans, keeps the same rate for the entire term, so market swings don't move it.

Extend your borrowing window

Every HELOC has a draw period, which is the stretch of time when you can borrow, repay, and borrow again up to your credit limit. Typical draw periods run 5–10 years. If yours is close to ending, refinancing could open a new borrowing window to extend your access to credit. Depending on market conditions, you might even be able to extend your borrowing period at a lower rate than when you first opened the line of credit.

Prepare for the shift to principal-plus-interest payments

Some lenders allow interest-only payments during the draw period. When the interest-only period ends, your required payment amount jumps up. That could be a good time to look at refinancing. Refinancing could lengthen the term to lower the monthly payments, though a longer term generally means more interest cost in the long run. 

Achieve Loans require full principal-plus-interest payments from the start. That allows you to make headway against the debt with each payment, and potentially save on total interest costs over the life of the loan. You’ll also avoid a sudden jump in your payments when an interest-only period ends.  

What refinancing a HELOC typically costs

Like your original line of credit, a HELOC refinance usually comes with closing costs. Common costs include:

• Appraisal fee

• Origination fee

• Title search

• Recording fees

The total generally runs around 2% to 5% of the loan amount, depending on the lender and your state. Weigh those upfront costs against your future monthly savings. If the savings recoup the closing costs within a year or two, refinancing could make financial sense.

HELOC refinance options explained

There are different ways to refinance. Each serves a different goal, whether that's a lower payment, a longer term, or extra cash from your equity. 

Here are three typical options for how to refinance a HELOC.

Option 1: Refinance into a new HELOC

If 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, you could pay less in interest or lower your monthly payment.

A new HELOC often resets your draw period and repayment terms. If you want more time to borrow against the equity in your home and repay what you owe, a fresh draw period works in your favor.

Note: Not all lenders reset draw periods. Some lenders keep your current draw period and repayment period. If a reset is important to your goals, confirm whether a new draw period is available.

Most HELOCs carry a variable rate. If rate predictability matters to you, Achieve Loans offers a fixed-rate HELOC so your rate stays the same for the life of the loan.

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

If you're trying to weigh a HELOC vs. a home equity loan, refinancing a HELOC into a home equity loan could lock in a fixed payment and a clear payoff date. 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. Another way of doing that would be to refinance your existing variable-rate HELOC into a new Achieve Loans fixed-rate HELOC. A fixed rate HELOC combines some of the benefits of a traditional home equity loan and a HELOC:

• Lock in at a fixed interest rate.

• Borrow, repay, and borrow again up to your credit limit during the draw period.

Option 3: Opt for a cash-out refinance

A cash-out refinance is a new mortgage loan that replaces your existing first mortgage and your HELOC. You could also get additional cash to spend if you qualify based on your credit score, combined loan-to-value (CLTV) ratio (what you owe on all home-secured loans divided by your home's value), and other factors.

A cash-out refinance is likely to change your current mortgage rate. Consider this strategy if you can qualify for an interest rate that's lower than the rate on your current mortgage.

How to refinance a HELOC, step by step

1. Review your current HELOC terms. Identify what you want to change: your rate, your monthly payment, your repayment timeline, or some mix of the three. Clear goals make the comparison faster.

2. Estimate your remaining equity. Your home's value and what you owe on your first mortgage and HELOC help determine whether you qualify for a HELOC refinance. The Achieve Loans HELOC calculator can give you a quick estimate.

3. Compare refinance paths. Each option has tradeoffs, so match the new HELOC, fixed-rate home equity loan, or cash-out refinance to your goal.

4. Apply and complete underwriting. Refinancing your HELOC requires an application process that verifies your income, credit, and property value. Timelines vary by lender and state.

5. Pay off the existing HELOC. Once you're approved, use the proceeds from the new loan to pay off your existing HELOC balance. Then you’ll start repaying the new loan under its terms.

Ready to explore your HELOC refinance options? Talk to a mortgage advisor to find out if you qualify.

Does refinancing a HELOC affect your credit?

A HELOC refinance usually involves a hard credit inquiry, which could temporarily lower your credit score by a few points. Closing your old HELOC and opening a new account also lowers the average age of your credit accounts, another scoring factor. A small, temporary dip is normal, and it's not something to lose sleep over.

On the positive side, consistent on-time payments on your new loan build positive payment history, the single largest factor in most credit-scoring models. And a HELOC could affect your credit utilization differently than a credit card. FICO Scores don't count HELOC balances in your utilization ratio, though some models, like VantageScore, do.

Alternatives to refinancing a HELOC

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

• Pay down balance faster. Build a debt payoff plan that will pay down your HELOC balance. The Achieve Loans GOOD app can help.

• Convert part of the balance. If your lender allows partial conversions, 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.

• Use a personal loan. A personal loan could help you consolidate your HELOC balance. Personal loans are unsecured, so they could carry a higher rate than a loan secured by your home. Run the numbers to confirm if you'd come out ahead.

Consider all your options to decide if there's a new loan that fits your needs better than your current HELOC.