Keeping your HELOC while you refinance your home 

Please note: Discover® Home Loans offers a home equity loan product but does not offer HELOCs. 

Mortgages are unique types of loans, and opening a home equity line of credit (HELOC) after your primary mortgage comes with its own intricacies. But even if you have a HELOC, you should know that you can still refinance your original mortgage.

That said, there are some important factors to keep in mind. Let’s explore the specifics of how you can keep your HELOC while refinancing your home. 

HELOCs and refinancing 

When you refinance your mortgage, you take out a new loan and use it to pay off your old loan. If you already had a HELOC, the HELOC becomes an older debt than your new refinanced mortgage. This means the HELOC would be the first lien and have priority unless it’s “subordinated.” 

In this case, subordination is when you legally prioritize one debt over another. Your refinancing lender wants you to pay off their debt before you pay off the HELOC, so they will usually require you to subordinate the HELOC. 

Subordination keeps your HELOC in a junior lien position, meaning if the time comes to pay off these liens, you would have to pay the debt on your first mortgage before you pay the debt on the HELOC.

The refinancing process with HELOC debt

There are a number of steps in your journey to refinancing with your HELOC, including:  

• Requesting subordination from a lender: Some lenders might not like the idea of subordinating their lien for your refinance. If they agree to it, they could charge additional fees and interest. 
• Getting your paperwork together: Both your lenders will examine your debt-to-income ratio, your creditworthiness, and your prior agreements, among other personal records. 
• Understanding new costs: Your refinance lender and your HELOC lender will likely charge different fees for your new agreement, including closing costs for the refinance and new fees for subordinating the HELOC. 
• Prepare for a credit check and appraisal: Refinancing could require a credit check and an appraisal, so you may see a slight dip in your credit score and have to pay a fee for the appraisal.

Obtaining a home equity loan after a refinance might be easier than trying to keep a HELOC as you refinance your mortgage. You may still need to pay closing costs and appraisal fees, but you won’t need to pay additional fees for the subordination. 

Pros and cons of keeping your HELOC when refinancing 

There are different pros and cons to keeping your HELOC when you refinance. Let’s take a look at them below. 

Pros:

• Flexible access to credit: When you keep your HELOC, you keep the revolving line of credit that you opened before, giving you more options for future spending.
• No need to reapply: Applying for a HELOC may come with its own paperwork and fees, and even though there may be fees associated with keeping your HELOC open, it might be less difficult than reapplying for one.
• Only interest on what you use: Your HELOC is a line of credit, so you can choose how much money you want to take out at a given time. You should only pay interest on the amount that you borrow. 

Cons

• Higher interest rates: Due to the subordination, your HELOC lender might require a higher interest rate on the funds you borrow in the future. 
• Potential for increased debt: Higher interest rates on the funds you use could lead to more debt, so you should make sure you have a plan to pay it off.
• Potential default on HELOC: Your home acts as collateral for your mortgage and your HELOC, so if you can’t pay the increased fees for your subordinated debt, you could risk losing your home.