Pay Off a HELOC With a Cash-Out Refinance | 2026 Guidelines

Managing multiple loans can be stressful, especially when your HELOC payments fluctuate with the prime rate. If you’ve been thinking about simplifying your finances, a cash‑out refinance might be the solution.

By rolling your HELOC and mortgage into a single loan, you could lock in a predictable fixed rate, potentially lower your monthly payments, and gain peace of mind knowing exactly what you’ll owe each month. For many homeowners, this strategy offers a way to take control of rising interest costs while keeping more of their home equity working for them.

In this article (Skip to…)

• Pay off HELOC with cash-out
• Rate-and-term refi
• HELOC Calculator
• Cash-out refi risks
• Mortgage rate impact
• Alternatives
• HELOC repayment
• Paying off HELOCs FAQ

Can you use cash-out refinance to pay off a HELOC?

Yes, thousands of homeowners each year use a cash‑out refinance to pay off their HELOC.

Many choose this approach because variable HELOC rates can spike with the prime rate, and locking in a fixed rate offers more predictable payments. This is especially helpful as HELOCs approach the end of their interest‑only period, when payments can jump significantly.

Mortgage lenders place no restrictions on how you use the proceeds, so you can apply the cash directly to your HELOC at closing, simplify your finances, and eliminate the need to manage two separate monthly payments.

It’s a straightforward way to consolidate debt and turn multiple loans into a single, manageable payment.

Consider paying off a HELOC with rate-and-term refinancing

Paying off a second mortgage is sometimes considered a “rate-and-term” mortgage refinance rather than a cash-out refi. This can be an advantageous repayment option, since rate-and-term refis come with lower rates and fewer restrictions.

Here are the requirements if you want to pay off a HELOC with a rate-and-term refinance instead of a cash-out loan:

• The new loan will be a conventional/conforming loan issued by a Fannie Mae- or Freddie Mac-approved lender
• The HELOC or home equity loan was used to purchase the property
• The entire HELOC loan balance was used for the purchase
• No additional draws have been made against the HELOC/second mortgage
• You can provide a settlement/closing statement for the home purchase

In short, you may qualify for the rate-and-term status if you used an 80-10-10 piggyback loan. The only reason you have a HELOC is that you financed the original home purchase.

HELOC Calculator

You might be wondering if you’ll save money by refinancing two mortgages into one loan.

Risks of cash-out refinancing first and second mortgages

Using a cash-out refinance to pay off a second mortgage doesn’t come without risks.

Mortgage prepayment penalties

You should check the loan terms you agreed to for both your first mortgage and HELOC before you get too excited about cash-out refinancing. One or both of those loans might contain clauses that impose prepayment penalties. Most lenders don’t include them but some do.

Usually, these penalties fade away to nothing after a few years. They rarely have much (or any) bite after five years.

Check with your mortgage advisor to help you understand the cost benefit if, and when, there are prepayment penalties.

HELOC or home equity loan penalties

For HELOCs, these penalties are called early closure fees. And they’re most likely to be troublesome if you only recently signed up for your loan.

In short, you’re likely to be fine using a cash-out refinance to pay off a HELOC if you didn’t just take out either your first or second mortgage.

If one or both are very recent, you need to work out the exact costs and feed them into your calculations. In some cases, they can undermine the economic basis of a refinance.

Impact of mortgage rates

You need to consider currently available interest rates versus the one you already have. In a rising rate environment, it’s harder to get a lower rate without shortening the term of the loan (from a 30-year to a 15-year, for example) or choosing an adjustable-rate loan (ARM).

The exception might be if you’re a “better” borrower now than when you originally borrowed: with a higher credit score, more equity or a stronger income/debt picture.

Rates versus payments: What’s your refinancing goal?

Cash-out refinancing is not cheap, and you may not get a lower interest rate than that of your current first mortgage. However, your monthly payment is likely to be lower than that of your mortgage and HELOC payments combined. Spreading out a 5-year repayment schedule over 30 years is likely to accomplish that.

Still, you must make sure your new payments are going to be affordable. So get a rate quote and use a payment calculator to get a firm grasp on what you’d face.

You also need to keep an eye on your total cost of borrowing: All loan charges, such as origination fees, plus the interest payments you make on the life of your loan.

Understand that in the long run, you’re likely to pay more interest by stretching out your home loan repayment, even if you get a lower interest rate by refinancing. You are trading a lower payment today for a higher cost tomorrow. There is nothing wrong with it as long as you are aware and going into your mortgage loan with eyes open.

Alternatives: Refinance into a second HELOC or home a equity loan

Before you commit to paying off a HELOC with a cash-out refinance, explore a couple of alternatives.

You may be able to refinance the HELOC itself, either to another HELOC or to a home equity loan with a fixed-interest rate and payment.

Both these HELOC repayment options typically have the advantage of lower closing costs and less hassle than a cash-out refinance. But they’ll likely come with higher interest rates. So do the math before you make your choice.

How HELOC repayment works

HELOC is an acronym that stands for home equity line of credit. It’s a form of second mortgage, meaning you’ve put your home up as security for the loan. And you could face foreclosure if you default.

There are many types of HELOCs with varying loan terms — 15 years is a popular one. The loan will have a draw period, followed by a repayment period.

Draw period

During that first draw phase, which might last 10 years, you can borrow as much against your credit line as you want, up to your limit. You pay back sums you choose, and you can reborrow again, up to that limit, as long as you are in the draw period.

In this way, a HELOC is similar to a credit card. Except, instead of paying down a credit card’s principal balance or making minimum payments each month, all you have to pay during a HELOC’s draw period is interest on your balance. For instance, for a HELOC at 6% with a $25,000 balance, the monthly interest payments are $125 a month.

Repayment period

At the end of the draw period, your credit line’s repayment term begins. Suddenly, you can’t borrow on your HELOC any more. And you have to repay the entire loan amount over the remaining term of the loan. Once your 10-year draw period ends, you might get five years in which to pay off your loan balance.

Many borrowers find their HELOC repayment period challenging financially, especially with only a 5-year repayment term to pay off the entire loan amount. For that $25,000 loan at 6%, for example, your monthly loan payment increases to $483. That’s assuming that the interest rate doesn’t go up.

Paying off HELOCs with a cash-out refi FAQ