HELOC, meaning Home Equity Lines of Credit, offers a means to access credit at lower interest rates, which makes it better than personal loans or credit card loans. Refinancing means a new loan is taken to cover an existing loan. While you can refinance any loan, it is important to know how to refinance a HELOC. You may consider refinancing your HELOC loan for various reasons, and there are several refinancing options available.
A home is one of the most valuable assets of every family. Aside from it being a roof over their heads, a home is a financial tool that can be used to access funds from a HELOC. However, HELOC possesses higher interest rates than other mortgage interest rates. This makes it quite difficult to repay when taken. For this reason, refinancing this home equity loan may be a good option.
However, unlike personal and credit card loans, HELOC requires borrowers to pay interest during the draw period. Depending on how much loan you take, the interest rates charged may cause your loan amount to increase your repayment more than the actual loan taken.
Can I Refinance My HELOC?
If you are having a hard time repaying your loan, refinancing your HELOC is a good option to consider. While this is an option, not every homeowner qualifies for this. Every HELOC lender has its own requirements borrowers are to meet to qualify for refinancing. Most lenders consider the following factors when determining a borrower’s qualification:
- Home Equity.
- Debt-to-income ratio.
- Credit Score.
Most HELOC lenders consider these factors when considering a borrower’s qualification for loan refinancing. They determine whether you can refinance your HELOC.
5 Methods to Refinance a HELOC
As previously stated, there are several ways you can refinance a HELOC. Struggling to repay your loan? Explore these 5 refinancing options for your HELOC
Speak to Your Lender Concerning the New Loan Terms
Most banks that offer home equity assistance programs allow borrowers to adjust their interest rates, loan terms, and monthly repayments. If you have a good relationship with your HELOC lender, getting this to work out may be possible. Since HELOCs are most often portfolio loans, lenders may agree to modify loans.
Create a new HELOC
Most lenders allow borrowers to create a new HELOC and move in some or all the old loan balance into it. Borrowers must pay interest on the loan balance but will regain access to the line of credit’s draw period. This means the principal payment on HELOC can be avoided. This is a good option to consider for young borrowers who have more years to build up more home equity.
Pay off your HELOC using a Home Equity Loan
Although this option draws on your ownership stake, a home equity loan is different from a line of credit. It makes payments in one whole sum amount and requires borrowers to resume repayments at a fixed interest rate. Fixed interest rates, steady monthly payments, and a longer repayment term make this refinancing option a good one to consider.
Refinance your HELOC to a New Mortgage
Refinancing your HELOC to a new 15-year or 20-year mortgage is a good way to lessen your total interest rates. Mortgage interest rates tend to be much lower than the interest rates of HELOC. However, this option is most times more complicated and involves a lot of paperwork. Irrespective of this and other factors, taking a new mortgage for your HELOC is the best option to reduce your interest rates.
Survey a Cash-Out Refinance
Cash-out refinancing is the act of taking a new mortgage that is more than you currently owe for your home and getting a different amount in cash. The extra funds to pay off some or the entire HELOC balance. However, do not forget that refinancing your mortgage means you will have to pay closing costs and fees.
Can I refinance a HELOC to a mortgage?
It is possible to refinance a HELOC to a mortgage. By getting cash-out refinancing and using the money to pay off the line of credit, you can refinance your HELOC to a mortgage. You can also refinance your HELOC by consolidating the remaining balance to a traditional refinance of your home primary mortgage. Irrespective of what you choose, refinancing your HELOC will help make repayments more flexible.