Can I Refinance a HELOC (Home Equity Loan)?

Does the consumer have the ability to refinance a home equity loan? Many homeowners are familiar with refinancing their first mortgage but there is a general unfamiliarity with paying off their home equity loan or mortgage. Home equity loans are typically variable in rate and typically used for home repairs and renovations. At certain times it is best to refinance you home equity balance in the new first mortgage which is fixed.

What is a home equity loan? There are typically two types of loans. The first is fixed where you receive a lump sum of cash the term can be fixed along with the interest rate. The second type is the home equity line of credit. You are approved for a certain amount of credit where you can tap into where and when you need money. The interest rate on a HELOC is typically variable and tied to some prime interest rate plus a marginal interest rate. The rate can go up or down on a monthly basis and you typically have the option of paying interest only on the borrowed amount. After 10 years the line is frozen and you are forced to pay principal and interest over a fixed amount of time. Closing costs and processing of home equity loans is typically simpler and lower in costs.

Both a home equity loan and a cash-out refinance accomplish the same goal – tapping into your house’s equity for whatever your needs may be. A cash out refinance replaces your existing mortgage with a larger mortgage and typically uses a fixed rate mortgage product minimizing volatility.

Refinancing a home equity loan is similar to obtaining a first mortgage and note the combined loan to value of your existing first mortgage coupling in the payoff of your home equity loan cannot exceed 85 Loan to Value (LTV). In other words, the total of all your outstanding mortgage balances cannot represent more than 85% of your home’s value.

A refinance cash-out loan provides a borrower peace of mind of one payment which is fixed and certainty they are paying down their mortgage and building equity.

As always, please consult your Loan Officer at Hall Financial to obtain all your options and receive the best financial advice.