You’ve probably heard a lot about refinancing your mortgage on better terms. But what about your home equity loan? Basically, it’s the second mortgage, so can I refinance? Simple answer: Yes. Like your main mortgage, you may be able to refinance your home equity loan.
And now might be a good time to do that. In 2025, home equity loan fees fell to their lowest levels in more than a year. Even better news? According to Bankrate’s home equity forecast, they are likely to continue to decline even further this year.
If the current figure is lower than the rate on the loan – at least in the entire percentage point – it’s worth considering. There is everything you need to know about when and how to refinance your home equity loan.
How to refinance your home equity loan
Refinancing a Home Equity Loan (Heloan) essentially involves replacing your existing loan with a new one.
Steps to refinance your home equity loan
- We will evaluate your position: It starts by determining whether refinancing will benefit you. Look at the current interest rate compared to what you have, calculate your potential savings over time, and consider how long you will be staying at home. You want it to be long enough to “break evenly”. This means that your savings outweigh the costs you pay in advance to refinance.
- Equity check: Calculates the current equity stake. For example, if the value of the home increases from $350,000 to $400,000 and you pay back your mortgage and previous home equity loans to a total of $200,000, it’s enough to consider a $200,000 or 50% equity investment. (Please explain in detail the minimum stock bets below.)
- Credit Score Review: Please check if you qualify for Refi to affect your interest rate offer or to you. If you first got a home equity loan and then have a significant increase in your credit score, you may qualify for a lower fee.
- Lender’s shopping: Reach out to several lenders to find the most advantageous rates and conditions. For example, one lender might offer an interest rate of 8.5% without closing costs, while another could offer an interest rate of 8.25% with closing costs. I would like to choose the latter.
- Understanding costs: I know the related costs of refinance. These include application fees or early payoff penalties for existing loans. For example, if a lender charges a 2% advance penalty on a $20,000 home equity loan, he borrows $400.
- Determine the type of refi: Based on your goals, determine whether a different fixed-rate home equity loan, variable home equity credit line (HELOC), or cash-out refinance is best. HELOC may offer the right options if you want to access equity on a rolling basis rather than a pause. Cash-out refi probably offers a lower interest rate, but includes current mortgage exchanges.
- Do the application: Apply for a new loan and supply proof of income, assets and liabilities. Depending on the lender’s requirements, a new property assessment may be required to assess the current value of your home.
- Review Offer: Once you receive your offer, compare the details and check the annual percentage rate (APR). Because the fees are included, the APR gives you a true sense of the total cost of the loan. If you’re going to HELOC, understand how often the prices fluctuate and how often they are per year.
- Close the loan: Upfront costs will be resolved upon closing. Use a new loan to repay your existing home equity loan. Next, you will begin repayment according to fresh terms.
How to qualify to refinance your home equity loan
If you use a home equity loan, you will not be eligible for a refinance automatically. You must qualify. Basically, you need:
- Appropriate amount of fairness
- Adequate credit score (at least mid-600s)
- Debt-to-income ratio below 43%
- A solid repayment record
First Requirement: Your home will act as a proper collateral to protect your loan. Most lenders require a matching loan of 85% or less and a worthy (CLTV) ratio. This means that the total of all outstanding home-backed debts (primary mortgages, home equity loans) accounts for less than 85% of the total value of your home. In other words, you clearly own at least 15% of your home for free.
You already met this benchmark when you first got your home equity loan, but you’ll need to revisit if you want to refinance. The value of the home may decrease after you first get a loan. That’s unusual, but it happens when the real estate market for local homes softens significantly and lowers the price of a home’s resale. Also, if your home equity loan is a significant loan and you have recently exhausted a significant portion of your equity, you haven’t paid much back yet.
You must also meet your personal financial and credit requirements. Many lenders require a minimum of 620 for a typical refinance. However, in the case of default, these second mortgages are behind the major mortgages in creditor repayment order, so the standards for stay-at-home equity loans tend to be more stringent. Some of his lenders have loosened their recent standards. However, “good” scores, preferably above 700, remain at the threshold for many institutions. Even among lenders working with “bad credit” candidates, the minimum score averages around 640.
You also need to have enough income and a low debt return (DTI) to make payments on a loan. This means that your monthly invoice should typically be less than 43% of your monthly total income.
Finally, especially if you want to refinance with the same lender, you will need a good repayment record with your current home equity loan. If you missed your payment, or were late or lacking, you might get hesitant. Conversely, if your finances are a little weak, but your records are solid, it may reduce some slack on you considering you were a reliable borrower as far as the loan is concerned.
Why refinance Heroan?
There are several reasons to refinance your existing home equity loan. They are:
- Reduce monthly payments. In many cases, refinancing your home equity loan will require you to pay less than monthly. This can happen in one of two ways: Get better (i.e. lower) interest rates with new loans, or it’s long-term for new loans.
- Lock at low interest rates. Many people refinance their housing equity loans as interest rates drop significantly. Locking more favorable interest rates can significantly lower your monthly payments, and of course you can reduce the amount of interest you pay overall.
- Switch from adjustable to fixed rate. If Home Equity Loan currently has variable rates, switching to a fixed rate loan will give you more stability. There are monthly predictable payments, not fluctuating with interest rate trends. Conversely, if interest rates are on a long-term downward course, you can throw away your loan at a high fixed rate in favor of variable rates.
- Rent an additional home renovation fund. Homeowners who perform large-scale repairs (functional furnaces, damaged roofs) or remodeling often find home equity loans in the most affordable way to fund these five-figure projects. If you’re working beyond your budget, or if you somehow strengthen it, refinance can help you with the same potential tax benefits and lower costs.
- Customizing terminology. If you have five years left on your home equity loan, you will be given the opportunity to change that term by refinancing. You can shorten the terminology and extend it to pay more aggressively or have more time to pay off your loan.
Pros and cons of refinancing a residential equity loan
Can I refinance my home equity loan and mortgage at the same time?
Yes, you can refinance both your home equity loan and your major mortgage at the same time. A typical way to do that is through cash-out refinance. In this case, you can use your surplus funds to repay your home equity loan.
Benefits of refinancing both loans at the same time
- Debt settlement: Using this option, you could combine your primary mortgage and home equity loans with a single payment to simplify your financial management and provide a lower total interest rate than a standard home equity loan (Refis tends to be percentage points or 2 points cheaper).
- Cash Access: The “cash-out” portion of the cash-out refinance means you will get additional funds. If you have something left after paying off your home equity loan, you can use your cash for a variety of expenses, including home improvements, credit card bills, and tuition fees.
The disadvantages of refinancing both loans at the same time
- Possibility of higher interest rates: Cash-out refinances often attract higher interest rates than standard and term refinances, which can lead to increased costs over the lifespan of your mortgage. Also, interest rates higher than current mortgage interest rates can be higher.
- Increase in loan amount and term: You will basically take out a large loan and extend the repayment period. This could result in an increase in total interest payments, especially if you are not planning to accelerate your payments to compensate for your reset amortization schedule.
What if I’m not eligible to refinance my home equity loan?
If you find yourself unable to refinance your home equity loan, consider investigating alternative passes to pay off these alternative passes. Essentially, these options involve exchanging one obligation for another.
- Home Equity Shared Agreement: These contracts offer lump sum payments, but in many cases they may be suitable for people with more generous standards and with credit scores and other weaker finances. Technically, the money you receive is an investment in your home, not a loan. Instead of receiving regular monthly payments, the investment company will acquire the future value of your home when you sell it or at the end of a specified period. However, if your home is highly valued, this can cost more than traditional loan interest.
- Reverse mortgage: Elderly people (ages 62 and over) can take advantage of their home equity by taking out these mortgages without monthly payments. Instead, the loan is repaid when the house is sold, or when the borrower vacates it forever. However, please note that in the long term, it could significantly increase the amount you are paying over the long term.
- Personal loan: Unsecured personal loans can provide prompt cash for emergencies and other needs. These loans generally carry higher interest rates and shorter terms than those protected by your home. Additional charges may apply.
Is refinancing a home equity loan right for me?
Refinancing your home equity loan can be a wise move for those who charge at the high interest rates of current loans. Especially when the rate exceeds the average interest rate. Plus, if your finances have improved significantly since your first loan, you can definitely do it for a better deal.
It can also be a good idea if you pay too much. Refinancing to a long-term loan reduces the size, but that means paying more interest overall. (Like a regular mortgage refinance, you will need to apply for a home equity loan refinance using your current lender or another lender. Be prepared to provide credit and financial information to the lender, along with a list of assets and liabilities.
In many ways, it’s similar to newcomers. In many cases, it is easier to refinance Heroan. Considering that you’re likely likely have a good track record of applying for a small amount and probably paying back your initial debt. Still, you want your financial profile to look as strong as possible.
The best reason to refinance your home equity loan is if your interest rate drops because it’s your first time borrowing. Make sure to consider a timeline for staying at home, be aware of changes in the value of your home, and take into account fees such as closure fees.
