Can You Refinance a Home Equity Loan?

By Bill Lyons | Published on February 20, 2025

Can I Refinance a Home Equity Loan?

Yes, you can refinance a home equity loan (HELOAN). A HELOAN is a type of loan that lets you borrow a lump sum of money based on the equity you’ve built in your home. A home equity loan typically has a fixed interest rate and predictable monthly payments.

Refinancing your home equity loan involves replacing your existing loan with a new one. For example, if your current loan has a high interest rate and rates have dropped, refinancing could save you money. Similarly, if your financial situation has improved, you might qualify for better terms or a shorter repayment period.

Knowing when to refinance is essential. It’s usually a good idea if current interest rates are significantly lower than when you took out your original loan. It might also make sense if your credit score has improved, your equity has increased, or your financial goals have changed. For example, maybe you want to reduce your monthly payments or explore other investment property loans.

Can I Refinance a HELOC?

Yes, you can refinance a HELOC. A home equity line of credit is a revolving credit line that lets you borrow against your home’s equity during a draw period, typically lasting 5 to 10 years.

During the draw period, you can borrow as needed and usually make interest-only payments. Once the draw period ends, the repayment period begins, requiring full principal and interest payments, which can significantly increase your monthly costs.

Refinancing your HELOC before the draw period ends can help you avoid those higher payments. For example, replace your current HELOC with a new one to extend the draw period or lower your interest rate.

Alternatively, you could refinance to a fixed-rate HELOC. Unlike traditional HELOCs with variable rates that fluctuate with the market, a fixed-rate HELOC locks in a steady interest rate, offering more predictable payments. If you value stability or expect interest rates to rise, switching to a fixed-rate HELOC through refinancing can make financial sense.

Why Refinance a Home Equity Loan?

Refinancing your home equity loan can help you better manage your finances or achieve new goals. Here are some common reasons why you might consider refinancing your loan:

• Lower your interest rate: If market rates have dropped since you took out your loan, refinancing can reduce your interest rate and save you money over time.
• Adjust your repayment terms: You might refinance to extend your loan term and lower monthly payments or shorten the term to pay it off faster.
• Access additional funds: Refinancing can allow you to borrow more if you’ve built additional equity in your home. This is particularly helpful for planning home improvements or other significant expenses.
• Switch to a fixed rate: If your current loan has a variable rate, refinancing to a fixed rate can provide stability and predictable payments.
• Consolidate debt: Refinancing your home equity loan can help combine higher-interest debts into one manageable monthly payment.

First and foremost, remember to evaluate your needs and financial goals to help you decide if refinancing a home equity loan is the right choice for you.

Pros and Cons of Refinancing a Home Equity Loan

A home equity loan refinance can be a smart financial move, but it’s important to weigh the pros and cons before deciding. Understanding how refinancing affects your payments, interest rates, and long-term financial goals will help you determine if it’s the right choice.

Pros of Refinancing a Home Equity Loan

• Lower interest rate: Refinancing can reduce your rate, saving you money over the life of the loan.
• Lower monthly payments: Extending your loan term can make monthly payments more manageable.
• Access to extra cash: If your home’s value has increased, you can borrow additional funds for large expenses like renovations or medical bills.
• Switch to fixed rates: Refinancing allows you to lock in a stable, fixed interest rate for predictable payments.
• Occupancy type: Refinancing can be done on a primary residence, second home, or investment property.

Cons of Refinancing a Home Equity Loan

• Closing costs: Refinancing often comes with fees that can add up, such as appraisal and origination costs.
• Extended repayment period: While lower payments sound appealing, a longer term means you’ll pay more interest overall.
• Risk of foreclosure: Using your home as collateral means missed payments could put your property at risk.
• Potential for higher rates: If your credit score has dropped, you may not qualify for better terms.

Home Equity Loan Refinance Requirements

Meeting these requirements helps ensure you’re a strong candidate for refinancing a home equity loan and can secure favorable terms to support your financial goals.

Lenders evaluate factors like your credit score, debt-to-income (DTI) ratio, and percentage of home equity to determine your eligibility. Here are the typical requirements you’ll need to meet:

• Minimum credit score of 640: Most lenders require a credit score of at least 640, but a higher score can help you secure better rates.
• Debt-to-income (DTI) ratio of 50% or lower: Your monthly debts should not exceed 50% of your gross income. Lower DTI ratios may improve your chances of approval.
• At least 10-15% home equity: You need enough equity in your home to qualify for refinancing and cover the loan’s closing costs.
• Stable income and employment: Lenders want proof of consistent income to ensure you can repay the loan. If employed, you need to prove income with W-2s and pay stubs. If you are self-employed, you need to prove your income using bank statements, 1099, or P&L statements. If you are a real estate investor, you need to prove your income by using gross rents.
• Good payment history: A strong history of on-time payments shows lenders you’re a reliable borrower.
• Appraisal of your home: Lenders may require a current appraisal to confirm your home’s market value. Automated instant property valuations may be used in some cases.

See If Refinancing Your Home Equity Loan Is Right for You

Refinancing your home equity loan opens the door to lower interest rates, flexible repayment terms, or extra cash for your goals. When you understand how the process works, and the best times to refinance, you can make confident financial decisions.

Griffin Funding makes refinancing simple and stress-free. As a trusted lender for home equity refinancing, Griffin Funding offers competitive rates and flexible options tailored to your needs. Plus, with the Griffin Gold app, you can seamlessly access smart calculators, monitor your finances, and speak with trusted advisors.

Whether you’re refinancing your HELOAN or HELOC, Griffin Funding is here to guide you every step of the way. Explore your options today and take control of your financial future.

Bill Lyons

Bill Lyons is the Founder, CEO & President of Griffin Funding. Founded in 2013, Griffin Funding is a national boutique mortgage lender focusing on delivering 5-star service to its clients. Mr. Lyons has 23 years of experience in the mortgage business. Lyons is seen as an industry leader and expert in real estate finance. Lyons has been featured in Forbes, Inc., Wall Street Journal, HousingWire, and more. As a member of the Mortgage Bankers Association, Lyons is able to keep up with important changes in the industry to deliver the most value to Griffin's clients. Under Lyons' leadership, Griffin Funding has made the Inc. 5000 fastest-growing companies list five times in its 11 years in business.