5 Signs It's Time to Refinance Out of Your HELOC

Quick Answer: Refinancing your HELOC makes sense when your draw period is ending, rates have dropped, you want payment stability, your credit improved, or you're selling/refinancing anyway. Here's how to know when — and when NOT — to make the move.

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Not All HELOCs Are Forever

A HELOC isn't meant to be a permanent fixture. Circumstances change. Rates shift. Your financial situation evolves.

The question isn't whether you'll eventually refinance or pay off your HELOC — it's whether NOW is the right time.

Here are the five clear signs.

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Sign 1: Your Draw Period Is Ending

This is the big one.

When your draw period ends (typically after 5-10 years), your payments can spike 30-90%. That's payment shock.

Why it happens:

• During draw period: Interest-only payments (or low minimums)
• During repayment period: Principal + interest over 10-20 years

Example:

• $75,000 balance at 8%
• Draw period payment: ~$500/month (interest only)
• Repayment period payment (15 years): ~$717/month
• Increase: 43%

What to do:

• Start shopping 6-12 months BEFORE your draw period ends
• A new HELOC gives you a fresh draw period
• A home equity loan converts to fixed payments
• Cash-out refinance simplifies to one mortgage

The window: Don't wait until payments spike. Refinance proactively.

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Sign 2: Rates Have Dropped Significantly

HELOC rates move with prime. If your HELOC was opened when rates were higher, you might be overpaying.

How to evaluate:

1. Check your current rate (statement or online portal)
2. Compare to today's average: ~7.44% (February 2026)
3. Factor in your margin (what your lender adds to prime)

Rule of thumb: If you can save 1%+ on your rate, refinancing is worth exploring.

Example:

• Current HELOC: Prime + 2% = 9.5%
• New HELOC offer: Prime + 0.5% = 8%
• On $60,000 balance: ~$900/year savings

But watch for:

• Early termination fees on current HELOC (typically first 2-3 years)
• Closing costs on new loan
• Make sure savings exceed costs

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Sign 3: You Want Payment Stability

Variable rate anxiety is real. Every Fed meeting, you're wondering if your payment is going up.

If that uncertainty is stressing you out, refinancing to a fixed option provides peace of mind.

Your fixed-rate options:

Home Equity Loan (HELOAN):

• Fixed rate, fixed payment
• Lump sum at closing
• No more draws, just payoff

Fixed-Rate HELOC Conversion:

• Some HELOCs let you lock portions at fixed rates
• Keep flexibility while gaining stability
• Check if your current HELOC offers this

Cash-Out Refinance:

• Roll everything into your mortgage
• One fixed payment
• Longer term = lower payment

The trade-off: Fixed rates are often slightly higher than variable starting rates. You're paying a premium for certainty. For many people, that's worth it.

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Sign 4: Your Credit Score Improved

Your HELOC rate is partially based on your credit score when you applied. If your score has improved significantly, you may qualify for better terms.

When to shop:

• Score improved 50+ points since opening
• You paid off other debts
• Negative items fell off your report

What better credit gets you:

• Lower margin (prime + less)
• Higher credit limit (if needed)
• Better terms overall

Check every 1-2 years: Even if nothing feels different, get quotes. You might be surprised.

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Sign 5: You're Selling or Refinancing Your Mortgage Anyway

If you're already in a refinance or sale transaction, coordinate your HELOC exit.

When selling:

• HELOC must be paid off from sale proceeds
• Factor this into your net proceeds calculation
• Early termination fee may apply

When refinancing your mortgage:

• Cash-out refi can pay off HELOC and mortgage together
• Or HELOC lender may require subordination (agreeing to stay second position)
• Easier to consolidate everything at once

The coordination opportunity:

Instead of two loans and two payments, consolidate to one. This simplifies your financial life — if the numbers work.

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When NOT to Refinance

Refinancing isn't always the right move. Avoid it when:

You're in the Early Termination Period

Most HELOCs have termination fees for the first 2-3 years (typically $300-$500).

The math: If your fee is $400 and annual savings are $300, you'd need more than a year just to break even. Wait until the fee period expires.

You're Close to Paying It Off

If you'll pay off your HELOC in 1-2 years anyway, refinancing adds unnecessary complexity and potential costs.

Better move: Accelerate payments and be done with it.

Your Credit Score Dropped

Worse credit = worse terms. If your score declined since opening your current HELOC, you might get a worse deal.

Better move: Improve your credit first, then shop for refinance.

You Plan to Sell Within 6-12 Months

Refinancing has costs (closing costs, time, hassle). If you're selling soon, those costs may not be recouped.

Better move: Keep current HELOC, pay it off at sale.

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Your Refinance Options Compared

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How to Refinance: Step by Step

Step 1: Know Your Current Terms

Before shopping, understand what you have:

• Current rate and margin
• Balance owed
• Draw period end date
• Early termination fee (if any)
• Time remaining

Step 2: Get Multiple Quotes

Shop at least 3 lenders:

• Your current HELOC lender (they may offer retention deals)
• Your primary bank/credit union
• Online HELOC lenders (often competitive)

What to compare:

• APR (not just rate)
• Closing costs
• Annual fees
• Early termination fees

Step 3: Calculate Break-Even

Formula: Total refinance costs ÷ Monthly savings = Break-even months

Example:

• Closing costs: $600
• Early termination fee: $400
• Total: $1,000
• Monthly savings: $75
• Break-even: 13 months

If you'll keep the new loan longer than break-even, refinancing makes sense.

Step 4: Time It Right

• Avoid refinancing in first 2-3 years (termination fees)
• Refinance 6-12 months before draw period ends
• Watch for promotional rates (some lenders offer specials)

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The Bottom Line

Refinancing your HELOC is worth it when:

• Your draw period is ending (payment shock coming)
• Rates dropped 1%+ since you opened it
• You want fixed-payment stability
• Your credit improved significantly
• You're already refinancing or selling

It's NOT worth it when:

• Early termination fees exceed savings
• You're paying it off soon anyway
• Your credit worsened
• You're selling within a year

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Ready to Explore Your Options?

HonestCasa compares multiple refinance paths — new HELOC, home equity loan, or cash-out refi — so you can choose what's best for your situation.

[See Your Refinance Options →]

Get quotes in minutes, not hours. No pressure, just options.

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Last updated: February 2026