Is Refinancing Your HELOC the Right Move? Everything Homeowners Need to Know

When you tap into your home’s equity through a HELOC, it can feel like accessing a financial lifeline. Yet as rates climb and draw periods end, homeowners increasingly face a tough reality: the monthly payments become unsustainable. The question then becomes whether refinancing your HELOC makes sense—and what options actually exist.

The HELOC Challenge: Why Refinancing Becomes Necessary

A home equity line of credit works like a high-limit credit card backed by your property’s equity. During the initial draw phase (typically 10 years), you pay only interest on what you borrow. But once that period ends, the real squeeze begins: principal payments kick in, often spanning 20 years, and variable interest rates can spike your monthly obligations dramatically.

The numbers tell the story. CoreLogic reported that over 807,000 HELOCs totaling $131 billion were opened in the first half of 2022—the highest volume since 2007. Yet many of those borrowers didn’t anticipate how much their payments would surge when rates spiked or when the repayment phase arrived. With HELOC rates frequently exceeding mortgage rates, monthly bills can rival or even surpass your original mortgage payment.

Qualifying for a HELOC Refinance: What Lenders Actually Look For

Not everyone can refinance. Lenders evaluate three critical factors:

Home Equity: Most institutions cap lending at 80% of your home’s appraised value. If your existing mortgage already approaches this threshold, refinancing becomes difficult or impossible.

Credit Standing: A FICO score of 670 or higher significantly improves approval odds. Lower scores may still qualify but expect to pay a premium interest rate.

Debt-to-Income Ratio: Lenders typically want to see your total monthly debt obligations represent less than 43% of your gross income. This ceiling is where many applicants hit a wall.

Your Three Primary Refinancing Paths

Option 1: Replace With a Fresh HELOC

The simplest approach mirrors standard mortgage refinancing: secure a new line of credit and use it to eliminate your existing HELOC. This restarts your draw period and resets you to interest-only payments—an appealing shortcut if current bills are crushing your budget.

The trade-off? You could accumulate significantly more interest over time if you don’t aggressively pay down principal. This strategy works best as a temporary breathing room, not a permanent solution.

Option 2: Convert to a Home Equity Loan

Home equity loans operate differently from HELOCs. Instead of drawing incrementally, you receive a lump sum upfront and immediately begin paying interest on the full amount. Most come with fixed interest rates and fixed monthly payments.

While this may not slash your monthly obligation, the predictability and rate stability appeal to borrowers focused on faster debt elimination. Since variable-rate HELOCs can climb to 10% or beyond, even a 6-7% fixed rate on an equity loan represents meaningful savings.

Option 3: Merge Into a Single Mortgage

Consolidating your HELOC and mortgage into one refinanced loan streamlines your finances and reduces paperwork. However, this approach carries a significant caveat: if you locked in a historically low mortgage rate years ago, refinancing means giving up that advantage for today’s higher rates.

The math sometimes still works if your HELOC balance is substantial. A modest increase to your mortgage rate might be offset by a dramatic cut to the HELOC portion—potentially saving thousands in total interest despite the mortgage rate trade-off.

When Refinancing Isn’t an Option: Alternatives to Explore

Those lacking sufficient equity or solid credit scores may find doors closed. In that case, consider:

Loan Modification: Many lenders would rather adjust your existing loan terms—lowering rates or extending repayment schedules—than risk foreclosure. Success depends on your payment history and how long you’ve held the account.

Personal Loan Route: Banks, credit unions, and online lenders offer personal loans to cover HELOC balances. You’ll get fixed payments and predictable rates, but APRs tend to run higher than HELOC rates, and a large balance might exceed what you can borrow.

Property Sale: As a last resort, selling your home eliminates the HELOC obligation entirely. This option deserves serious consideration only when payments threaten financial stability, since foreclosure looms if you default.

Making Your Decision

Refinancing a HELOC demands careful comparison of your rates, equity position, and long-term financial goals. Each path—new HELOC, equity loan, or mortgage merger—solves different problems. Before committing, run the numbers with a qualified mortgage professional who can model your specific situation and guide you toward the strategy that minimizes lifetime costs while fitting your cash flow needs.