Is it possible to refinance a home equity line of credit

Equity is the amount of value in your home after you subtract any loans against the home. Most lenders work with a maximum loan-to-equity ratio of , which means they are willing to lend up to 80 percent of the available equity in your home. Finally, the lender will consider your income. Similar to any other loan, a bank wants to be sure you have enough income to consistently make your payments on the HELOC, even if your financial situation has changed since you first took out the line of credit.

Another potential stumbling block might be if you have recently retired. In that case, be prepared to show that you can sustain your income over at least 36 months, said Demming. One benefit of this option is that it can be the simplest, fastest path to better loan terms.

But the drawback is that it might not be offered by all lenders. Michelle Petrowski, a certified financial planner in Phoenix, said she recently opened a new HELOC herself and was impressed by the low rates, no closing costs, and minimal amount of paperwork.

But be careful: A new HELOC could increase the total amount of interest you pay over time, and it might make it tempting to draw more money down the line. Refinancing your mortgage alongside your HELOC can give you better overall terms, more negotiating power, and a comprehensive way to restructure your payments. Especially if your HELOC is on a variable interest rate like most are , refinancing it all into a new mortgage can help you lock down a fixed rate for all of the debt.

The downside is that this process can be more complicated, involve more paperwork, and come with potentially higher closing costs. A less common, but still viable option is to use a home equity loan which is a lump sum of money to pay off your HELOC. This could again allow you to lock in fixed interest rates and payments, but keep in mind that it might also stretch out the payment period and increase your total interest paid. If none of the traditional refinancing choices work for you, there are other ways to pay off your HELOC, but they might not be as beneficial.

For example, you could apply for a personal loan — which is likely to have a fixed, but higher, interest rate — and use that money to pay off your HELOC. Interest rates are still historically low and home values continue to surge — a perfect combination of conditions for an advantageous HELOC, if you are able to qualify.

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The information on this site does not modify any insurance policy terms in any way. A home equity line of credit HELOC is a type of loan that allows you to borrow from the value of your home.

Lenders may approve you for a certain line amount, which you can draw from as you would a credit card.

At this point, you can no longer borrow money. Unlike some other types of loans, a HELOC is secured, meaning it uses your home as collateral for the loan. This means that if you fall behind on payments, the lender may be able to foreclose on your home. However, because it is secured, a HELOC will often have a lower interest rate than something like a personal loan. Homeowners who have equity in their homes often take out a HELOC to pay for emergencies, large purchases or even home renovations.

If you choose to pay only the interest on your HELOC instead of paying down a part or all of the principal during the first 10 years, you may be in for a huge shock when you reach the end of the draw period — especially if HELOC rates have risen since you first took out the loan.

Even if the new interest rate is higher than that of your original loan, this might be the best option for you because it could give you the extra time you need to repay the funds.

If you think that you may not be able to cover your monthly bill during the repayment period, there are a few ways to refinance your HELOC:. While the above options are the most common ways to refinance a HELOC, there are other ways to get help with payments:. Refinancing would make it possible to take advantage of that equity and potentially save on your home equity line of credit rate in the process.

Before committing, compare all of your options and shop around to find the best rate. Cash-out refinancing is the process of taking out a new mortgage for more than you currently owe on your home and receiving the difference in cash to pay off your HELOC. How We Make Money. Ideally, the new loan would come with a lower interest rate, a lower monthly payment, or access to more cash. For this reason, your lender may order an appraisal to assess the value of your property.

Though most homeowners refinance their home equity loans to save on interest or reduce their monthly payments, there are other reasons you might want to do it too. Credible can help you compare rates from our partner lenders.

Find My Refi Rate Checking rates will not affect your credit. Home Equity Loan: How to Decide. Clearly, there are both pros and cons to refinancing a home equity loan. While it can help you lower your payment or take more cash out of your home, using your home as collateral does come with risks. Ultimately, the right choice depends on a lot of factors. This will allow you to evaluate whether refinancing is a good opportunity or not.