How to refinance a HELOC

Please note: Discover® Home Loans offers a home equity loans and mortgage refinance opportunities, but does not offer HELOCs.

If you took out a home equity line of credit (HELOC), you have a draw period and repayment period. During the draw period, you can draw on your line of credit and typically only pay interest on the money you borrow.

When your repayment period hits, however, you’ll no longer be able to draw on your line of credit and must pay down the amount you borrowed plus interest. While the draw period usually lasts up to 10 years, the repayment period is typically 15-20 years. 

Reasons to refinance a HELOC

• Lower your monthly payments: It can be difficult to go from interest-only payments during the draw period to possibly much higher principal and interest payments during the repayment period. If you refinance your HELOC, you may be able to reduce your interest rate and monthly payments so that the repayment period becomes more affordable.
• Get more money: Your home's value may have increased since you took out your HELOC. If this is the case, a HELOC refinance can allow you to get more money from your home equity. You can use the funds to remodel your home, pay for your child’s college, or even go on a vacation.
• Convert to a fixed rate: If you have an adjustable-rate or variable-rate HELOC, you may be able to convert to a fixed-rate loan for more stable monthly payments. Most home equity loans and cash out refinances also feature fixed rates, and these are two ways to refinance your HELOC.
• Adjust your repayment terms: Adjusting your HELOC’s repayment terms means changing how soon you will pay off your loan. You can shorten terms to potentially reduce HELOC interest charges and lower your interest rates, although your monthly payments will increase. Or you can lengthen your HELOC’s original terms, which may increase your interest charges but can allow you to pay less each month.

How do you refinance a HELOC?

After your draw period expires, your repayment period will begin, and your payments may jump higher at this time. So, as you approach the end of your draw period, you may want to consider refinancing your HELOC.

1. Loan modification

For a loan modification, you contact your lender and request an adjustment to your loan by extending its terms or reducing its interest rate so that you can better afford the monthly payments. If you are eligible to do this, it may be a good option if you’re worried you won’t be able to make your payments once your draw period is over and the repayment period begins.

Pros

• Extend terms (repayment period) for HELOC.
• Earn a lower interest rate or lock in a fixed rate.
• Preventing your monthly payments from increasing frees up money for other debts.

Cons

• Not always an option—your request may be denied. 

2. Get a new HELOC

If you get a new HELOC to pay for the old one, you’ll be able to extend the draw period and defer the repayment period. A new HELOC may make sense if you feel confident that you’ll be able to make full payments once you enter the repayment period. It’s typically not a good option if you’re nearing retirement, won’t have a way to make your payments, or don’t want to pay more in interest.

Pros

• Postpone the financial burden of making large payments during the repayment period.
• Receive lower upfront costs than with a home equity loan.
• Take more cash out if your equity allows

Cons

• Potentially pay more in interest charges over the life of the loan.
• Taking out more money may tempt you to overspend and increase your debt.

3. Get a home equity loan to pay HELOC

If you’d like to lock in a fixed monthly payment, you may want to consider refinancing your HELOC with a new home equity loan. Unlike a HELOC that works like a revolving line of credit, a home equity loan gives you access to a lump sum of money up front.

Pros

• Get a fixed interest rate (hopefully lower than your current HELOC rate) that won’t change your monthly payment amount.
• Alleviate the financial burden of making larger principal and interest payments than on a HELOC. 

Cons

• Closing costs and fees.