Can You Refinance A HELOC?
Yes, you can refinance a Home Equity Line of Credit (HELOC).
There are several ways to achieve this: HELOC refinance options include refinancing to another HELOC, or paid-off entirely through a cash-out refinance or using funds from a fixed-rate home equity loan.
Some lenders may allow you to do a loan modification to lower the interest rate or convert to a fixed rate, without having to refinance.
At Credit Union of Southern California (CU SoCal), we make getting a Home Equity Line of Credit (HELOC) easier.
Call 866.287.6225 today to schedule a no-obligation consultation and learn about our home equity lines of credit, auto loans, personal loans, checking and savings accounts, and other banking products.
As a full-service financial institution, we look forward to helping you with all of your banking needs.
Read on to learn more
Get Started on Your Home Equity Line of Credit (HELOC)
What Is A HELOC?
A Home Equity Line of Credit (HELOC) is provided by a lender, has a credit limit, a variable interest rate, and is secured by the equity in a home.
A HELOC is considered “revolving” credit, which lets the borrower withdraw money repeatedly up to an assigned credit limit. As the borrowed amount is paid off monthly, the account is replenished.
Credit cards are another type of revolving credit, but these come with high interest rates that make it costly when a large amount of money is borrowed.
With its low interest rate, HELOCs are very popular with homeowners who need some extra cash for any type of purchase. Some common uses for a HELOC include home renovations, buying a second home or investment rental property, paying for college tuition, and paying-off high interest debt.
A HEOC is a “secured loan,” meaning that lenders require that the borrower put up security or collateral (in this case the borrower’s home) to secure the loan. Because your home is used as collateral, if you default on the loan, the lender can take possession of your home.
To learn more, read “What is a HELOC?”
HELOC Refinance Eligibility Requirements
Refinancing a HELOC can include the same steps you followed to secure your original HELOC. Before you shop for a new loan, ask your current lender how to refinance a home equity line of credit. If you’re a customer in good standing, you may qualify for a better interest rate and waived application/processing fees.
Here are some typical eligibility requirements:
Home Equity: According to the
Federal Trade Commission, depending on your creditworthiness and outstanding debt, you may be able to borrow up to 85 percent of the appraised value of your home, minus the amount you owe on your first mortgage.
Debt-To-Income Ratio (DTI): Your
debt-to-income ratio is all your monthly debt payments divided by your gross monthly income. This number is one way lenders measure your ability to manage the monthly payments to repay the money you plan to borrow. Many lenders will require that a borrower have a DTI of less than 43 percent.
Loan-To-Value Ratio (LTV): This is another value that lenders use to calculate borrower risk. To calculate your LTV, use the following equation:
LTV = Amount owed on the loan ÷ Appraised value of your home.
To convert this to a percentage, multiply the sum by 100. Lenders generally accept an LTV up to 80 percent.
Credit History: The lender will ask to view your credit history and credit score. Lenders use credit scores to determine the risk of lending to a particular borrower. The higher your credit score, the better (lower) the interest rate you’ll be given.
Home Value: An appraisal will likely be required to determine you home’s value. Some lenders will do a “drive-by” appraisal and take exterior photos to get the information they need; other lenders may use local and county valuation data to determine a home’s value.
To learn more, read "
HELOC Requirements"
When Is It A Good Time To Refinance Your HELOC?
All HELOCs have a draw period (typically 10 years) during which the monthly payments are interest-only and therefore are relatively low. When the draw period ends, the loan repayment period takes effect and the monthly payments will include interest and principal (amount of the loan that’s been used). Repayment periods vary from 10-15 years depending on the lender.
Why You Should Consider Refinancing Your HELOC
Many homeowners are not prepared to pay the higher monthly principal and interest payment when the draw period ends. With interest rates very low, refinancing a HELCO toward the end of the draw period can save you money.
Some lenders may allow a loan modification which would give you a lower interest rate on your HELOC without having to refinance.
HELOC refinance options include:
Refinancing to a new HELOC, paying it off entirely with a cash-out refinance, or refinancing to a fixed-rate home equity loan.
Lower Monthly Payments: With interest rates very low, there’s a good chance you can save money by refinancing the HELOC to a new lower rate.
More Funds: If the value of your home has increased and/or your equity in the home has increase, you could qualify for a larger loan amount and have more funds available to you.
Delay Making Principal Payments: Refinancing a HELOC before the end of the draw period basically restarts the draw period by establishing a new loan.
What You'll Need To Refinance
Lenders will request the following information from the borrower(s) to start the refinance process:
Personal Information: This typically includes two forms of government-issued identification.
Employment & Income Information: Lenders will ask for W2s or 1099s, pay stubs and other statements that show you will be able to pay back the loan.
Mortgage Details: Be prepared to show your most recent mortgage statement.
Property Information: This will include the address of the subject property. A property appraisal will likely be required.
Information on Outstanding Debts. The lender will ask for statements for any outstanding loans you may have, including auto loans, student loans, and other debt.
How To Refinance Your Home Equity Line Of Credit
Credit Union of Southern California (CU SoCal) can help you refinance your home equity line of credit. Here are some simple steps to follow:
Talk To Your Lender. If your current loan is with CU SoCal, give us a call. We’ll review the loan details, listen to your financial goals, and help you choose a refinance option that works best for your unique situation. DOES CUSOCAL DO LOAN MODIFICATIONS?
Open A New HELOC. If you still need access to funds, a new HELOC can get you there and you can use the funds from the new loan to pay off your existing HELOC. This option can have lower up-front costs than refinancing; however, you may end up paying more in interest over the course of the loan if rates rise.
Use A Home Equity Loan To Pay Off HELOC. A home equity loan has a fixed interest rate, so you know what your monthly payments will be through the life of the loan. However, this type of loan requires that you start paying off the loan balance right away, and you may end up paying more in interest in the long-term.
Refinance HELOC and Mortgage Into A New Mortgage. If interest rates are lower than your current mortgage interest rate, consider refinancing with cash-out to pay off your HELOC. If the current interest rate is higher than your current mortgage interest rate then it doesn’t pay to refinance to a higher rate just to pay off the HELOC.
Refinancing Alternatives
Fixed-Rated HELOCs. Ask your lender about converting your HELOC to a fixed rate before the draw period ends. You may be able to get a low fixed rate and enjoy the predictability of fixed monthly payments.
HUD Assistance Programs. The Department of Housing and Urban Development is the Federal agency responsible for national policy and programs that address America's housing needs. Foreclosure prevention counseling and homeless counseling services are available free of charge through HUD's Housing Counseling Program. If you need advice on buying a home, renting, default, foreclosure avoidance, credit issues or reverse mortgages call HUD at
(800) 569-4287 or contact a
HUD-approved counseling agency near you.
Consider Getting A Personal Loan. A wide variety of
secured and unsecured personal loans are available to meet a wide variety of borrowing needs, including paying off a HELOC. CU SoCal offers variable and fixed rate
personal loan options.
CU SoCal HELOC
CU SoCal offers an interest-only HELOC, so you pay only the interest due each month, giving you the flexibility to keep payments low during the 10-year draw period of your loan. We offer the choice of either a lump-sum loan or a revolving credit line that can be used over and over again.
Other great HELOC features include:
- Access up to 80% of your home's equity.
- No points.
- No appraisal fees for single unit loans.
- No annual fee.
- No closing costs.
- Loan limit up to $250,000.
Why Savvy Consumers Choose CU SoCal
For over 60 years CU SoCal has been providing financial services, including HELOCs, car loans, personal loans, mortgages, credit cards, and other banking products, to those who live, work, worship, or attend school in Orange County, Los Angeles County, Riverside County, and San Bernardino County.
Please give us a call today at 866.287.6225 today to schedule a no-obligation consultation with one of our HELOC experts.
Apply for a HELOC today!
Get Started on Your Home Equity Line of Credit (HELOC)