Key Takeaways
- Most HELOCs have variable interest rates, so payments may increase if rates rise or when the draw period ends and principal repayment begins.
- You may be able to convert part of your HELOC to a fixed rate, replace it with a fixed-rate home equity loan, or use a cash-out refinance.
- If your budget allows, paying principal during the draw period can reduce total interest and result in a smaller balance to repay later.
To refinance a HELOC into a fixed-rate home equity loan, you take out a new loan and use the proceeds to pay off the HELOC balance. Depending on your lender and goals, you may also be able to lock a fixed rate on part of your existing credit line or use a cash-out refinance. This guide explains each option, potential costs, and how each affects your line of credit.
Check your home equity loan options. Start hereIn this article (Skip to...)
- Why HELOC payments can rise
- 3 options for refinancing a HELOC into a home equity loan
- How to choose between a fixed-rate conversion and a refinance
- Costs and trade-offs to compare
- How to refinance or convert your HELOC
- Check your home equity loan options
- FAQs about refinancing a HELOC into a home equity loan
Why HELOC payments can rise
Most HELOCs use a variable interest rate based on an index, such as the prime rate, plus a margin set by the lender. When the index changes, the rate and required payment also change even if you have not borrowed more. The Consumer Financial Protection Bureau explains that some HELOCs also let borrowers convert part or all of a balance from a variable rate to a fixed rate.
HELOC payments typically rise for two reasons:
- The variable rate changes. Most HELOC rates equal an index, such as the prime rate, plus a lender margin. If the index rises, the rate and required payment can rise even without new borrowing.
- The draw period ends. Some HELOCs allow interest-only minimums during the draw period. When repayment begins, you generally cannot borrow more and must pay principal plus interest. Some plans may also require a balloon payment.
What experts are saying
Mike Eshelman, CMB
“If cash flow permits, borrowers should try to repay some of the principal even during the draw period, even though the minimum payment is interest-only. This helps to reduce the amount of interest paid over the life of the line and reduces the payment shock when the HELOC’s draw period ends and the lender requires the interest and principal to be paid each month.”
3 options for refinancing a HELOC into a home equity loan
There are three main ways to refinance some or all of a variable HELOC balance with fixed-rate debt. The key differences are whether you keep the existing line, whether you replace the first mortgage, and how much you pay to complete the transaction.
Option | What happens | Can the line stay open? | Main consideration |
|---|---|---|---|
Fixed-rate conversion | Part or all of the existing HELOC balance moves to a fixed rate under the same line. | Usually yes for any unused or variable portion, subject to the lender’s terms. | Often the simplest route, but the rate, term, limits, and fee vary by lender. |
Fixed-rate home equity loan | A new lump-sum loan pays the HELOC balance and is repaid on a fixed schedule. | The HELOC is commonly paid and closed; confirm the required treatment before closing. | You must qualify for a new loan and may pay appraisal, title, and closing costs. |
Cash-out refinance | A larger first mortgage replaces the current first mortgage and provides cash to pay the HELOC. | Usually no. Keeping it open requires the HELOC lender to approve subordination. | The new rate, term, and closing costs apply to the full first-mortgage balance. |
Option 1: Use your HELOC’s fixed-rate conversion feature
Some HELOCs let you convert part or all of the outstanding balance to a fixed interest rate without opening a new loan. The HELOC remains in place, and any unused or unconverted portion may remain available for future draws under the account terms. The CFPB notes that the fixed rate is usually higher than the variable rate, but the payment is more predictable.
Ask your lender about the minimum conversion amount, fixed repayment term, number of fixed-rate segments allowed, whether repaid principal becomes available again, and any conversion fees. Do not assume this feature is available after the draw period; your agreement determines when and how you can use it.
Option 2: Refinance into a fixed-rate home equity loan
A new home equity loan provides a lump sum, usually with a fixed rate and equal monthly payments. You use the proceeds to pay the HELOC balance, then repay the new loan over a set term. The CFPB’s home equity loan overview explains that the home secures the debt, so missed payments can lead to foreclosure.
This refinancing option may suit you if you want to pay off the full balance on a predictable schedule without replacing a favorable first mortgage. You will need to qualify again, and the lender may require an appraisal, title work, and closing costs. Confirm whether you must pay off and close the HELOC as part of the transaction. Review how home equity loans work before comparing offers.
Option 3: Use a cash-out refinance
A cash-out refinance replaces your first mortgage with a larger loan and returns part of your equity as cash. You can use the proceeds to pay off your HELOC balance. Because the transaction replaces your entire first mortgage, compare the new rate, term, monthly payment, and closing costs with your current mortgage. Freddie Mac notes that the new loan has a new rate and term and includes refinance costs.
You can either pay off and close the HELOC with the cash-out proceeds, with the new lender coordinating the process, or pay down the HELOC balance while keeping the line open. Keeping it open requires the HELOC lender to approve a subordination agreement that places its lien behind the new first mortgage. Approval is not guaranteed and may add time or fees to the refinance.
Consider a cash-out refinance only if the new first-mortgage terms are favorable after accounting for all costs. Review current cash-out refinance requirements before applying.
What about refinancing into another HELOC?
Yes, you can open a new HELOC and use it to pay off your existing line. The new HELOC may provide a longer draw period or better terms, but it will usually have a variable interest rate. If you want a predictable payment, look for a new HELOC that lets you convert the balance to a fixed rate.
How to choose between a fixed-rate conversion and a refinance
Begin by identifying your financial objective, then compare the rate and cost of each option. The following questions can help narrow your choice:
- How much of the balance should be fixed? A conversion may work when you want to fix only part of the balance. A home equity loan usually replaces the full balance.
- Will you need to borrow again? A conversion may preserve access to an unused portion of the line. A payoff normally ends that access unless the HELOC remains open under approved terms.
- When does the draw period end? Starting before the deadline gives you time to compare offers and complete underwriting before repayment begins.
- What happens to the first mortgage? A home equity loan leaves it in place. A cash-out refinance replaces it, so the new terms apply to the full balance.
- What is the total cost? Compare the fixed rate, APR, monthly payment, fees, term, and total interest rather than focusing on one number.
- Can you qualify now? A new loan requires a review of your current income, credit, equity, title, and property. A conversion may require less documentation, depending on the lender.
A fixed-rate conversion is often the best choice if your current HELOC terms are acceptable and you want to keep some access to your revolving credit line. A fixed-rate home equity loan may be better if you want to replace the full balance without changing the first mortgage. A cash-out refinance requires a broader analysis since it changes both the first mortgage and the HELOC.
Use a HELOC versus home equity loan comparison to evaluate which option is best for your goals.
See what HELOC rates you qualify for todayCosts and trade-offs to compare
A fixed payment can simplify budgeting, but each option affects your debt’s cost and flexibility. Consider these points before deciding:
- Conversion charges. Some lenders charge a fee to convert a HELOC balance to a fixed rate, while others do not. The fixed rate may also be higher than the current variable rate.
- Closing costs. A home equity loan or cash-out refinance may include application, appraisal, title, origination, and other closing charges.
- Early-termination fees. Some HELOCs charge a cancellation fee if you close the line early, usually within the first two or three years. Check your agreement and the lender’s payoff statement.
- Loss of revolving access. You cannot draw from a paid-off and closed HELOC. A fixed-rate conversion may preserve access only to the amount allowed under the remaining line terms.
- Longer repayment. A longer term can lower the monthly payment but increase the total interest paid.
- New underwriting. A new home equity loan or cash-out refinance is approved using your current credit, income, debts, equity, and property information.
- Foreclosure risk. The home secures each option. Missing required payments can put the property at risk.
The CFPB lists common HELOC fees, including conversion and early-cancellation fees. Your loan documents and written quotes provide the terms that apply to you.
How to refinance or convert your HELOC
The exact process depends on the option and lender, but the following steps cover the main decisions and paperwork.
- Review your current HELOC. Identify the balance, credit limit, draw-period end date, repayment schedule, index, margin, rate cap, conversion feature, and any cancellation or payoff fees.
- Ask about a fixed-rate conversion. Request the available rate, payment, term, minimum conversion amount, conversion fee, and effect on future borrowing.
- Decide what should happen to the line. If you are considering a new loan, ask whether you must pay off and close the HELOC. For a cash-out refinance, ask early if you can keep the line open through subordination.
- Compare written offers. Review the APR, fixed or variable rate, monthly payment, loan term, closing costs, total interest, and any change to revolving access.
- Apply and complete underwriting. A new loan may require income and asset records, a credit check, title work, homeowners insurance, and an appraisal. A conversion may use a shorter lender process.
- Verify the payoff or conversion. After closing, confirm that the HELOC balance was handled as agreed and that the line is either closed, left open, or subordinated in writing. Check the first statement for the correct rate and payment.
If possible, start before the draw period ends to allow time to compare lenders and address payoff or subordination requirements.
Time to make a move? Let us find the right mortgage for youCheck your home equity loan options
If replacing your HELOC with a fixed-rate home equity loan fits your budget, compare offers from several lenders before making a decision. Review the interest rate, APR, monthly payment, closing costs, repayment term, total interest, and whether the HELOC will remain open. The providers below can help you explore your options.
FAQs about refinancing a HELOC into a home equity loan
Can you refinance a HELOC into a fixed-rate loan?
Yes, you may be able to convert part or all of the existing balance to a fixed rate, replace the HELOC with a fixed-rate home equity loan, or use a cash-out refinance. Availability and terms vary by lender.
Does converting a HELOC to a fixed rate close the line of credit?
Not necessarily. A fixed-rate conversion may leave the HELOC open and preserve access to an unused or variable portion. A new home equity loan commonly pays and closes the HELOC. Confirm how the lender will treat the account before closing.
Can I keep my HELOC open after a cash-out refinance?
Possibly, but the HELOC lender must approve a subordination agreement that places its lien behind the new first mortgage. If subordination isn’t approved, the cash-out lender will generally require you to pay off and close the HELOC.
Is there a cost to lock a fixed rate on a HELOC?
There may be. Some lenders charge a conversion fee, and the fixed rate may be higher than the current variable rate. A new home equity loan or cash-out refinance usually has closing costs.
Should I refinance before the HELOC draw period ends?
Starting before the draw period ends can give you more time to compare options and complete a new loan before principal repayment begins. The best timing depends on your contract, current rate, balance, costs, and budget.
Is a fixed-rate home equity loan better than a HELOC?
Neither is always better. A fixed-rate home equity loan offers a set payment and term. A HELOC provides revolving access, but its variable rate can make payments less predictable. Choose based on how you will use the money and how much payment uncertainty you can manage.
