Restructuring Your HELOC: Is Refinancing Right for You?

When homeowners face soaring monthly payments on their home equity line of credit, refinancing often seems like the only escape route. But can you refinance a HELOC, and if so, which approach makes the most sense for your situation? The answer depends on your financial profile and current market conditions.

Understanding HELOC Basics Before You Refinance

A HELOC operates as a flexible credit facility secured by your home’s equity. Unlike traditional mortgages, it functions similarly to a high-limit credit card—you draw what you need during the initial phase and pay only interest charges. This draw period typically spans 10 years. Once it concludes, withdrawals stop and principal repayment begins, usually over 20 years.

The catch? HELOC rates are variable and tend to exceed mortgage rates. When interest rates climb, your monthly payments can balloon unpredictably. During 2022’s first half alone, property owners opened more than 807,000 HELOCs valued at $131 billion—the highest volume since 2007, according to CoreLogic data. Many of these borrowers now find themselves struggling with affordability as rates have increased significantly.

Lender Eligibility Requirements for Refinancing

Before exploring refinance options, understand what lenders examine:

Equity Position. Most lenders cap lending at 80% of your home’s appraised value. If your current mortgage already exceeds this threshold, refinancing becomes difficult or impossible.

Credit Assessment. A FICO score of 670 or higher typically qualifies you for better terms. Lower scores don’t necessarily disqualify you, but expect to pay elevated interest rates as compensation for perceived risk.

Income-to-Debt Ratio. Lenders generally prefer your debt-to-income ratio to stay below 43%. This metric reveals whether you’re overleveraged relative to your earnings.

Three Primary Approaches to Restructure Your HELOC

Securing a Fresh Line of Credit

The most straightforward path mirrors mortgage refinancing—you obtain a new HELOC and use proceeds to retire the old one. Your draw period resets, returning you to interest-only payments. This eases short-term cash flow but carries a warning: you could accumulate substantially more interest expenses long-term if you don’t aggressively pay down principal.

Converting to a Home Equity Loan

Unlike a HELOC’s flexible withdrawal structure, a home equity loan delivers a lump sum at closing. You immediately begin repaying both principal and interest. While monthly payments may not drop dramatically, many borrowers appreciate the certainty: fixed rates and fixed payment schedules reduce payment volatility. This structure appeals to those committed to eliminating debt faster.

Consolidating Into Your Primary Mortgage

Blending both debts into one streamlined payment has merit, but involves a critical trade-off. If you locked in a historically low mortgage rate years ago, refinancing forces you to abandon that advantage. Today’s 30-year fixed rates average under 7%, but HELOC rates can spike to 10% depending on creditworthiness and market conditions. However, this consolidation might prove financially logical if your HELOC balance is substantial—you’d accept a slightly higher mortgage rate while achieving significant savings on the HELOC portion.

When Refinancing Isn’t Possible

Insufficient equity or damaged credit can block traditional refinancing pathways. Consider these alternatives:

Loan Modification. Lenders sometimes adjust existing terms—reducing rates or extending repayment timelines—to avoid foreclosure. Eligibility typically requires you’ve held the loan for a minimum period and maintained payment history.

Personal Loan Route. Banks, credit unions, and online lenders offer personal loans with fixed APRs and payment schedules. The downside: personal loan rates often exceed HELOC rates, and larger balances may exceed the lender’s approval limit.

Strategic Home Sale. While nobody relishes moving, selling your property serves as a final option if payments become genuinely unmanageable. Remember that your lender can foreclose if you default—your home secures this debt.

The Bottom Line

Whether you can refinance a HELOC hinges on your equity position, credit standing, and debt ratios. If you qualify, restructuring can transform an unsustainable debt into manageable payments. Consult a financial advisor to evaluate which approach aligns with your long-term goals before proceeding.