How to Refinance a HELOC: 4 Options When Payments Get Unmanageable

Your $200/month interest-only payment is about to become $500/month. Here's what to do about it.

If you're approaching the end of your HELOC draw period—or already in repayment—you know the feeling. That comfortable interest-only payment is transforming into something that strains your budget. Payments can jump 30-90% when you shift from draw to repayment.

You're not alone. HELOC balances hit $411 billion in Q2 2025, with 13 consecutive quarters of growth. A lot of homeowners are facing this exact situation.

The good news: you have options. Let's walk through the four ways to refinance your HELOC and when each one makes sense.

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Why People Refinance HELOCs

Two scenarios drive most HELOC refinancing:

Payment Shock

Your 10-year draw period ends. Suddenly you're paying principal AND interest over 15-20 years instead of interest only. On a $50,000 balance at 8%:

• Interest-only payment: $333/month
• Principal + interest (15 years): $478/month

That's a 43% increase overnight. And if your balance is higher or your repayment term is shorter, the jump is even steeper.

Rate Increases

HELOCs have variable rates. If you got your HELOC when prime was 3.25% and it's now 8.5%, your rate has nearly tripled. Refinancing can lock in stability.

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Option 1: Refinance Into a New HELOC

What it does: Replaces your existing HELOC with a fresh one, resetting the draw period.

How it works:

1. Apply for a new HELOC with your current lender or a new one
2. New HELOC pays off the old one
3. You get a fresh 10-year draw period
4. Interest-only payments resume

Pros:

• Immediate payment relief
• Maintains flexibility of revolving credit
• Can sometimes negotiate better rate
• Access to additional equity if home has appreciated

Cons:

• Kicks the can down the road (you'll face repayment again in 10 years)
• May pay closing costs
• Requires requalification (credit, income, equity check)
• Variable rate risk continues

Best for: Homeowners who need temporary relief and want to maintain access to a credit line.

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Option 2: Convert to a Home Equity Loan (HELOAN)

What it does: Replaces your variable-rate HELOC with a fixed-rate home equity loan.

How it works:

1. Apply for a home equity loan
2. Loan pays off your HELOC balance
3. Fixed rate, fixed payment for the life of the loan
4. No more variable rate surprises

Pros:

• Payment predictability (same payment every month)
• Protection against rate increases
• Often similar rates to HELOC
• Clear payoff date

Cons:

• Lose flexibility (can't redraw funds)
• Payment may be higher than interest-only HELOC
• Closing costs typically higher than HELOC
• Locked in even if rates drop

Best for: Homeowners who value stability and want to know exactly what they'll pay every month.

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Option 3: Cash-Out Refinance

What it does: Replaces both your primary mortgage AND HELOC with a single new mortgage.

How it works:

1. Apply to refinance your primary mortgage
2. Borrow enough to pay off existing mortgage + HELOC
3. One loan, one payment, potentially lower combined rate

Pros:

• Simplifies debt into one payment
• Fixed rate available
• May get lower overall rate
• Clean slate (no second lien)

Cons:

• Higher closing costs (2-5% of loan amount)
• Restarts mortgage amortization (more total interest over time)
• Extends debt payoff timeline
• Your primary mortgage rate might increase

Best for: Homeowners whose current mortgage rate is at or above market rates, making a full refinance attractive anyway.

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Option 4: Personal Loan

What it does: Unsecured loan to pay off HELOC balance.

How it works:

1. Apply for personal loan (banks, credit unions, online lenders)
2. Use loan proceeds to pay off HELOC
3. HELOC closed, no more lien on your home

Pros:

• Home is no longer collateral
• Fixed rate and payment
• Faster approval process
• Works even if you're underwater on equity

Cons:

• Higher interest rates (typically 8-15%+)
• Shorter repayment terms (3-7 years)
• Higher monthly payment
• No tax deduction

Best for: Homeowners who are underwater on equity (can't qualify for secured options) or want to remove the lien from their home.

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Which Option Is Right for You?

Use this decision framework:

Do you have 20%+ equity?

Yes → Options 1, 2, or 3 are available No → Option 4 (personal loan) or negotiate a modification with your lender

Do you want payment flexibility?

Yes → Option 1 (new HELOC) No, I want predictability → Option 2 (HELOAN) or Option 3 (cash-out refi)

Is your primary mortgage rate already low?

Yes (below current rates) → Options 1 or 2 (don't mess with a good mortgage) No (at or above current rates) → Option 3 might make sense

How much is your HELOC balance?

Under $50,000 → Options 1, 2, or 4 Over $50,000 → Options 1, 2, or 3 (cash-out refi makes more sense for larger amounts)

What's your timeline?

Need relief immediately → Option 4 (fastest approval) Can wait 2-4 weeks → Options 1, 2, or 3

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HELOC Refinancing Requirements

Whichever option you choose, here's what lenders evaluate:

Equity

• New HELOC or HELOAN: Typically need 15-20% equity remaining
• Cash-out refi: Usually need 20% equity after the refi
• Personal loan: No equity required

Credit Score

• New HELOC: 680+ for best rates (620 minimum)
• HELOAN: Similar to HELOC
• Cash-out refi: 620-700+ depending on lender
• Personal loan: 660+ for best rates

Income/DTI

• All secured options: DTI typically under 43-50%
• Personal loan: More flexible, but payments must fit budget

Property

• Must have clear title
• Property must qualify (some condos, manufactured homes have restrictions)

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What If You Can't Refinance?

If you don't qualify for any of these options, you still have paths forward:

Contact Your Lender

Many lenders offer modification programs—extended terms, rate reductions, or forbearance. They'd rather work with you than foreclose.

Credit Counseling

Nonprofit credit counselors can help negotiate with lenders and create a debt management plan.

Bankruptcy (Last Resort)

Chapter 7 or 13 bankruptcy can address HELOC debt, though with significant consequences. Consult a bankruptcy attorney.

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Frequently Asked Questions

Can I refinance a HELOC before the draw period ends? Yes. There's no requirement to wait. If you find better terms or want to lock in a rate, refinance anytime.

Will I pay prepayment penalties? Some HELOCs have early termination fees (typically $300-500 in the first 2-3 years). Check your original agreement.

Can I refinance with the same lender? Yes, and some lenders offer loyalty benefits. But shop around—different lenders may offer better terms.

How long does HELOC refinancing take? New HELOC: 2-4 weeks HELOAN: 2-4 weeks Cash-out refi: 30-45 days Personal loan: 1-7 days

What if my home value has dropped? If you're underwater or have minimal equity, Options 1-3 become difficult. Personal loan (Option 4) or lender modification are your best paths.

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Take the First Step

Feeling payment shock doesn't mean you're stuck. HonestCasa can help you evaluate which refinancing option fits your situation—without pressure or obligation.

[See Your Refinancing Options →]

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This article is for informational purposes. Your specific situation may require professional financial or legal advice.