HELOC Refi Options: Should You Refinance Your Home Equity Line of Credit?

Your home represents far more than just a place to live—it’s one of your most significant financial assets and a potential source of funds. A home equity line of credit (HELOC) offers homeowners a flexible borrowing tool to tap into accumulated equity. Yet as interest rates climb and repayment obligations loom, many borrowers find themselves asking: Is refi the right move?

Why HELOC Refinancing Matters Now

The HELOC market has experienced remarkable growth. During the first two quarters of 2022 alone, CoreLogic reported that over 807,000 home equity lines were opened, representing approximately $131 billion in total value—the highest volume since the 2007 financial crisis. While this popularity reflects homeowners’ confidence in leveraging their property equity, it also highlights a growing challenge: managing increasingly expensive debt.

Here’s the core issue: HELOC interest rates typically exceed standard mortgage rates, and they’re usually variable rather than fixed. During the draw period (commonly lasting 10 years), borrowers often pay interest only. But once that window closes and the repayment period begins (typically 20 years), principal payments kick in. For many homeowners, those monthly obligations balloon to levels that rival their actual mortgage payment—sometimes even exceeding 10% APR depending on creditworthiness.

That’s where refi enters the conversation.

Who Qualifies for HELOC Refinancing?

Not every homeowner can refinance their HELOC, and lenders evaluate candidates using consistent criteria:

Home Equity Level — Most lenders will only finance up to 80% of your home’s appraised value. If your existing mortgage already exceeds this threshold, HELOC refi approval becomes difficult or impossible.

Credit Score — A FICO score of at least 670 positions you favorably. Lower scores don’t automatically disqualify you, but they typically result in higher rates. Demonstrating a history of on-time payments strengthens your application.

Debt-to-Income Ratio — Lenders typically want to see your total debt obligations (including the potential new HELOC payment) represent less than 43% of your gross monthly income. This metric directly influences both approval odds and interest rates offered.

Three Paths to Refi Your HELOC

Strategy 1: Secure a Fresh HELOC

The most straightforward refi approach mirrors standard mortgage refinancing—you replace your existing line with a new one, either from your current lender or elsewhere. You then use the new credit line to pay off the old balance.

This strategy has a notable advantage: you restart the draw period, reverting to interest-only payments and reducing immediate payment pressure. However, this approach carries a hidden cost. By extending your interest-only phase, you may substantially increase the total interest paid over time unless you actively pay down principal.

Strategy 2: Convert to a Home Equity Loan

Another refi option involves replacing your HELOC with a home equity loan. While both tap into your property’s equity, the structure differs significantly. Rather than maintaining flexible draw access, a home equity loan provides a lump sum at closing. You begin paying interest immediately on the full amount.

The payment reduction might be modest, but the long-term savings can be substantial. Home equity loans typically carry fixed rates and fixed monthly payments—a stability advantage if you’re prioritizing debt elimination. This predictability appeals to borrowers tired of variable-rate uncertainty.

Strategy 3: Blend Into Your Primary Mortgage

For streamlined bill management, combining your HELOC and mortgage into a single refinanced loan presents another option. However, this path requires careful consideration, particularly if you secured your original mortgage at historically low rates.

As mortgage professional Kristina Morales explains to lenders: “The problem becomes: Do I have to give that rate up?” If you locked in a favorable rate years ago, refinancing might force you into a higher mortgage rate today. However, the math can still work in your favor with substantial HELOCs. While your mortgage rate might increase slightly after refi, the interest savings on your HELOC could prove significant. Current 30-year fixed mortgage rates have averaged under 7% in 2023, while HELOC rates for less-qualified borrowers can reach 10% or higher.

When Refinancing Isn’t an Option

Some homeowners lack sufficient equity or carry credit challenges that disqualify them from traditional refi. Alternative strategies exist:

Loan Modification — While lenders have no obligation to modify existing loans, many prefer adjusting terms (lower rates, extended repayment periods) over initiating foreclosure. Eligibility typically requires maintaining your account for a minimum period with a payment history.

Personal Loan Route — Banks, credit unions, and online lenders offer personal loans that can pay off HELOC balances. Like home equity loans, they provide lump-sum funding with fixed rates and payments. The tradeoff: personal loan APRs often exceed HELOC rates, and larger credit lines might exceed personal loan limits.

Relocation — Though nobody wants to abandon their home, selling represents a final option if HELOC payments become genuinely unmanageable. Remember: lenders can foreclose if payments stop, as your property secures the debt.

The Bottom Line

Refinancing your HELOC deserves serious evaluation, especially as rates shift and your financial situation evolves. Whether through securing a new line, converting to a fixed home equity loan, or blending into your mortgage, refi options can provide meaningful relief. For personalized guidance on whether HELOC refi makes sense for your situation, consult with a qualified financial professional.