HELOC Refinancing Explained: Your Options When Rates Get Too High

Your home isn’t just shelter—it’s potential cash waiting to be tapped. A home equity line of credit (HELOC) lets homeowners borrow against their property’s value, and the numbers show this strategy is booming. In early 2022 alone, Americans opened over 807,000 HELOCs worth $131 billion, marking the highest activity since the 2007 financial crisis, according to CoreLogic data.

But here’s the catch: HELOC rates typically exceed standard mortgage rates, and when your variable-rate payments spike, refinancing your HELOC might be the answer.

Understanding Your Starting Point: What Exactly Is a HELOC?

Before you refinance a HELOC, it helps to know how one works. A HELOC functions like a high-limit credit card backed by your home’s equity. During the “draw period” (usually 10 years), you withdraw only what you need and pay interest only. Once that ends, the repayment period kicks in—often 20 years—and you’re forced to repay principal plus interest.

The problem? Variable rates mean your monthly payment could balloon from manageable to mortgage-sized. Some HELOCs charge rates exceeding 10%, while typical 30-year fixed mortgages averaged under 7% through 2023. That rate shock is exactly why refinancing a HELOC makes sense for many borrowers.

Can You Actually Refinance a HELOC? What Lenders Require

Not everyone qualifies to refinance a HELOC. Lenders evaluate three core factors:

Home Equity Position Most lenders cap borrowing at 80% of your home’s appraised value. If your existing mortgage already exceeds this threshold, refinancing gets complicated.

Credit Score A FICO score of 670+ opens refinancing doors. Lower scores don’t disqualify you entirely, but expect higher rates as a penalty.

Debt-to-Income Ratio Lenders scrutinize your total debt versus income. Most require a DTI below 43%. If you’re overleveraged, refinancing approval becomes unlikely.

Three Ways to Refinance Your HELOC

Assuming you clear the qualification hurdles, three main pathways exist:

Option 1: Restart With a Fresh HELOC

The simplest approach mirrors mortgage refinancing—replace your old HELOC with a new one from your current lender or shop for better terms elsewhere. Your new line of credit pays off the old one, resetting your draw period and returning you to interest-only payments.

The tradeoff: While this eases short-term cash flow strain, you risk paying substantially more interest long-term if you skip principal payments during the new draw period.

Option 2: Convert to a Home Equity Loan

Instead of another HELOC, take out a home equity loan—a completely different beast. You receive one lump sum at closing rather than a flexible credit line. Payment? You start immediately, typically at fixed rates with fixed payments.

Monthly savings may be modest, but the psychological boost of predictable payments and a guaranteed end date appeals to many borrowers eager to escape debt.

Option 3: Roll Both Into Your Mortgage

Combine your HELOC and mortgage into a single refinanced loan. This consolidation simplifies bill-paying but carries a critical warning: Don’t do this if you locked in a historically low mortgage rate. Refinancing forces you to accept current market rates, potentially paying more on your mortgage to save on your HELOC.

However, if your HELOC balance is substantial, blending might still pencil out. Trading a 10% HELOC rate for a blended rate closer to 7% could save thousands despite a slightly higher mortgage rate.

When Refinancing Isn’t an Option: Alternatives to Explore

Insufficient equity or poor credit blocking traditional refinancing? Try these backup solutions:

Loan Modification Contact your lender about modifying existing terms—lower rates, extended repayment periods, or payment holidays. Banks often prefer modifications over foreclosures.

Personal Loan Online lenders, credit unions, and banks offer personal loans to cover HELOC payoffs. You’ll get fixed rates and fixed payments, though APRs typically exceed HELOC rates. Large balances might exceed personal loan limits.

Strategic Downsizing Selling your home remains the nuclear option—but it works if payments have become genuinely unaffordable. Remember: your HELOC is secured by your property, meaning lenders can foreclose if payments stop.

The Bottom Line

Refinancing a HELOC transforms unsustainable debt into manageable payments. Whether you open a new line of credit, switch to a fixed-rate home equity loan, or consolidate into your mortgage depends on your equity, credit standing, and risk tolerance. When in doubt, consult a mortgage professional to map your best path forward.