Yes, you can refinance a home equity loan. You pay it off with new money, usually a new home equity loan, a HELOC or a cash-out refinance of your first mortgage, and the old loan disappears. People do it to get a lower rate, shrink a payment, borrow more, or pull a second loan into one.
Whether you should is a harder question right now. Home equity loan rates are higher than they were a year ago, mortgage rates climbed after the Federal Reserve raised its benchmark in September, and millions of homeowners are holding first mortgages at rates they’ll never see again. Refinance the wrong way and you can trade a small savings on a second loan for a much bigger cost on your first. This guide walks through each way to refinance, what it costs, how to tell if the numbers work, and what to do in the situations where the usual advice falls apart.
Six Straight Answers Before You Call a Lender
The questions borrowers ask most, answered first. The numbers and exceptions follow.
Yes. A new lender, or sometimes your current one, pays off the old loan and gives you a new one with a different rate, term or amount.
There’s no federal waiting period. Check your loan for an early payoff fee; on closed-end loans made since 2014, prepayment penalties are capped and disappear after three years.
Commonly 2% to 5% of the loan amount for appraisal, title, recording and origination charges, though some lenders cover part or all of them in exchange for a slightly higher rate.
Only for some borrowers. Average home equity rates are higher than a year ago, so refinancing pays off mainly if your current rate is well above 9% or your credit has improved a lot.
Usually not if your first mortgage rate is low. A cash-out refinance reprices your entire mortgage at today’s rate, which can cost far more than you’d save on the second loan.
Slightly and briefly. Expect a hard inquiry and a new account. Shopping several lenders within about two weeks is generally scored as a single inquiry.
The Ways to Refinance a Home Equity Loan
Every route ends the same way, with your old loan paid off at closing. What differs is the rate type, what happens to your first mortgage and how much flexibility you keep.
A new home equity loan
This is the most direct swap: a new fixed-rate second mortgage pays off the old one. You can choose a new term, often 5 to 30 years, and borrow a little extra if you have the equity. Because it’s a closed-end mortgage, you’ll receive a Loan Estimate within three business days of applying and a Closing Disclosure at least three business days before closing, so you can compare offers line by line.
A HELOC
A home equity line of credit can pay off your loan and leave you with a reusable line. HELOCs averaged about 7.34% in mid-October, roughly a point below fixed home equity loans, which is why they’re tempting. The catch is that the rate is variable and tied to the prime rate, which rose to 7.00% in September. You’d be trading a known payment for one that can rise, and many HELOCs require interest-only payments during the draw period, which delays paying down the balance.
A cash-out refinance
A new, larger first mortgage pays off both your existing mortgage and the home equity loan, leaving one payment. It makes sense when your first mortgage rate is already near or above today’s rates, or when you’re consolidating several debts. For anyone with a first mortgage locked at 3% to 5%, it’s usually the most expensive option by a wide margin. We’ll show the math below.
A personal loan or a lump-sum payoff
For a small remaining balance, say under $15,000, an unsecured personal loan avoids appraisals and closing costs and takes the lien off your house. Rates are usually higher, so it fits best when the balance is small and you can pay it off in a few years. If you have savings earning less than your loan rate, paying the balance down directly is the simplest refinance of all.
Asking your current lender first
Some lenders will modify the rate or term on an existing home equity loan, or refinance it in-house with lower fees, to keep you as a customer. If you’re struggling to pay, ask about a loan modification instead of a refinance. A refinance requires new underwriting, and a modification is designed for hardship.
| Option | Rate type | Typical rate now | Effect on first mortgage | Best for | Main catch |
|---|---|---|---|---|---|
| New home equity loan | Fixed | About 8.3%–8.7% | Untouched | Lower fixed rate, new term | Closing costs, appraisal |
| HELOC | Variable | About 7.3% | Untouched | Short payoff plans, flexibility | Rate can rise with prime |
| Cash-out refinance | Fixed or ARM | About 7.3% (30-year) | Replaced | High first-mortgage rates | Reprices whole mortgage |
| Personal loan | Fixed | Credit-based, often higher | Untouched | Small balances | Shorter terms, higher rates |
| Lender modification | Varies | Negotiated | Untouched | Hardship | Not guaranteed |
Home Equity Refinance Rates Right Now
Refinancing only helps if the new rate beats the old one by enough to cover the costs. Here’s where the market sat in late October.
Two forces are pushing these numbers. The Federal Reserve raised its benchmark by a quarter point on September 16, lifting the prime rate to 7.00%, which most HELOCs follow directly. Fixed home equity loans track longer-term Treasury yields instead, and those have been elevated too. A year ago, Bankrate’s 5-year home equity loan average was 8.13% and the 30-year mortgage averaged 6.19%. Both are higher now.
When we lined up this year’s averages against last year’s, the conclusion was uncomfortable for anyone hoping for an easy rate cut. A borrower who took a home equity loan in the past 12 months is very unlikely to find a lower average rate today. The people who can still benefit are those carrying loans from the most expensive stretch of recent years, or whose credit score has climbed enough to move them into a much better pricing tier.
Three borrowers, three different answers
To see where the line falls, we ran three realistic loans against the late-October average of about 8.27% for a 10-year home equity loan, keeping each borrower’s remaining term the same.
Borrower A owes $40,000 at 10.5% with 10 years left. Refinancing drops the payment from about $540 to $491, saving roughly $49 a month. With $800 in closing costs, the refinance pays for itself in about 17 months and saves around $5,000 over the life of the loan. This is a clear yes.
Borrower B owes $55,000 at 9.5% with 13 years left. This is our calculator’s default. The savings of about $38 a month need roughly 43 months to cover $1,650 in costs, and the total payoff is about $4,340. It’s a yes, but only for someone confident they’ll stay in the home and keep the loan for at least four years.
Borrower C owes $30,000 at 8.9% with 8 years left. The payment falls by less than $10 a month. With $900 in costs, break-even takes more than seven and a half years, nearly the entire remaining term, and the lifetime savings round to almost nothing. For this borrower, sending an extra $100 a month toward principal would do far more good than refinancing.
The pattern is consistent: rate gap matters most, but balance and remaining term decide whether a modest gap is worth the closing costs. Small balances with short remaining terms rarely justify a refinance unless the lender covers the costs.
Refinancing into a HELOC: the rate-risk math
The roughly one-point gap between average HELOC rates and fixed home equity loans is real, but it’s not free. When we ran a $55,000 balance through a typical interest-only HELOC at 7.34%, the draw-period payment came to about $336 a month. If the prime rate rises one full point over the next year or two, that payment climbs to about $382, and it rises again when the draw period ends and principal kicks in. Federal Reserve officials projected at least one more increase after September’s, so this isn’t a hypothetical risk.
A HELOC refinance tends to work best for borrowers who plan to pay the balance off within a few years, who want the flexibility to borrow again for a staged project, or whose lender offers a fixed-rate lock on part of the balance. If a rising payment would strain your budget, the fixed home equity loan’s higher rate is buying you certainty.
The Cash-Out Refinance Trap: Look at Your Blended Rate
The pitch sounds tidy: one loan, one payment, one rate. The question nobody in that pitch asks is what happens to the cheap first mortgage you already have.
Your real cost of borrowing is the blended rate across both loans, weighted by balance. Take a homeowner with $250,000 left on a first mortgage at 3.5% and $55,000 on a home equity loan at 9.5%. The second loan’s rate looks painful, but the blended rate on all $305,000 is only about 4.58%. A cash-out refinance at today’s 7.32% average would replace that blended 4.58% with 7.32% on the full balance.
We ran both paths. Keeping the two loans costs about $1,867 a month: roughly $1,252 on the first mortgage over its remaining 25 years and $615 on the home equity loan. One cash-out loan for $305,000 over 30 years at 7.32% costs about $2,095 a month, $228 more, and adds well over $250,000 in lifetime interest. The second loan that felt expensive was, in context, the cheap part of the problem.
If your first mortgage rate is already at or above roughly 7%, folding the home equity loan into it can lower your blended rate and simplify your bills. It can also make sense when you need to remove a co-borrower after a divorce, convert an adjustable first mortgage to a fixed rate, or consolidate several high-rate debts at once. Run the blended-rate math either way before you sign.
Home Equity Refinance Calculator: Savings and Break-Even
Enter your current loan and a new offer. The tool shows your new payment, how long until the savings cover your closing costs, and what you’d save overall.
Assumes fixed rates, on-time payments and that you keep the new loan to the end.
The defaults show a $55,000 loan at 9.5% with 13 years left, refinanced to 8.28% at 3% closing costs. The payment drops about $38 a month, and it takes about 43 months, roughly three and a half years, for those savings to repay the $1,650 in costs. Kept to the end, the refinance saves around $4,340. Now switch the term to 15 years. The payment falls about $81, which feels better, but total interest actually ends up slightly higher than keeping the old loan, because you’ve added two extra years of payments. A lower payment and a cheaper loan are not the same thing.
What You Need to Qualify
A home equity refinance is underwritten like a brand-new loan. Your old approval doesn’t carry over, so check these before you apply.
Equity. Lenders cap how much you can owe on all loans combined, measured as combined loan-to-value, or CLTV. Many stop at 80% to 85% of your home’s appraised value, and some go to 90% for strong borrowers. On a $400,000 home with a $250,000 first mortgage, an 80% limit leaves room for a second loan of up to $70,000; at 90%, up to $110,000. If home values in your area have slipped, your room may be smaller than when you first borrowed.
Credit. Many home equity lenders look for scores in the mid-600s at minimum, with the best pricing typically above 740. If your score has risen since your original loan, that alone can justify shopping, because pricing tiers often matter more than market moves.
Debt-to-income ratio. Your total monthly debt payments, including the new loan, divided by gross monthly income. Many lenders look for 43% or less, with some going higher for strong files. A refinance that lowers your payment can actually help this number.
Appraisal and title. Expect a new appraisal or an automated valuation and a title search, since the new lender needs to confirm the value and the lien order.
How to refinance a home equity loan, step by step
Pull your payoff figure and your loan note
Ask your current lender for a payoff quote good for at least 30 days, and find the note’s section on early payoff. You need the exact balance, any prepayment charge and your current rate before a new offer means anything.
Check your credit and estimate your equity
Get free reports from all three bureaus at AnnualCreditReport.com and fix errors first. Use recent nearby sales to estimate your home’s value conservatively, then work out your combined loan-to-value with the first mortgage included.
Request at least three Loan Estimates on the same day
Rates move daily, so quotes gathered a week apart aren’t comparable. Ask each lender for the same loan amount and term. Include your current lender and at least one credit union. Several mortgage inquiries within a short window are generally scored as one.
Compare the APR and the cash to close
The Loan Estimate’s standardized format makes this easy: line up the APR, the total closing costs and the lender credits. A loan with a slightly higher rate and no closing costs can beat a lower-rate loan if you might sell or refinance within a few years.
Lock, appraise and review the Closing Disclosure
Once you choose, lock the rate and schedule the appraisal. You’ll receive a Closing Disclosure at least three business days before closing. Compare it with your Loan Estimate; some fees can’t rise at all, and others can rise only within set limits.
Close, then confirm the old lien is released
After closing and any cancellation period, the new lender pays off the old loan. A few weeks later, confirm with your county recorder or the old lender that the old lien has been released. A forgotten lien release can cause headaches when you sell.
What the closing costs actually pay for
Closing costs on a second-mortgage refinance usually include an appraisal or automated valuation, a title search and lender’s title insurance, county recording fees, a credit report charge and, at some lenders, an origination or underwriting fee. Recording fees and taxes vary widely by county and state, which is one reason total costs range from about 2% to 5% of the loan. On smaller loans, flat fees take up a bigger share, so a $30,000 refinance can carry a higher percentage cost than a $100,000 one.
You have more room to negotiate than most borrowers assume. Many banks and credit unions advertise home equity loans with reduced or waived closing costs, especially for existing customers. Ask each lender for an itemized estimate and for a version where the lender pays some costs in exchange for a slightly higher rate. Then put both versions through the calculator above; the right choice depends mostly on how long you’ll keep the loan.
Rights and rules that protect you
When a new lender refinances a home equity loan on your primary residence, federal Truth in Lending rules generally give you three business days after closing to cancel, and the lender typically won’t release funds until that window passes. If your existing lender refinances its own loan without giving you new money, that right usually doesn’t apply, except to any new cash you take. Plan contractor deposits and debt payoffs around those three days.
Prepayment penalties are limited too. For most closed-end mortgages made since January 2014, including home equity loans, a lender can charge a prepayment penalty only on certain fixed-rate loans, capped at 2% of the balance in the first two years and 1% in the third, with none after that. Some lenders instead ask you to repay closing costs they waived if you pay off early. Find the payoff section of your note before you request quotes.
On taxes, interest on home equity debt is deductible only if you itemize and the money was used to buy, build or substantially improve the home that secures it, within the $750,000 mortgage debt limit that’s now permanent. Refinancing doesn’t change that test. If you take extra cash and spend it on anything else, interest on that part isn’t deductible.
Which Situation Sounds Like Yours?
“Refinance if rates drop” is the advice everyone gives. These are the situations where the right move is something else.
You’re the borrower most likely to benefit right now. Get quotes for a new fixed home equity loan from at least three lenders, including a credit union, and ask each for a version with lender-paid closing costs. Keep the same remaining term or shorter, so the lower rate actually lowers your total interest.
Your new first-mortgage lender will require the home equity lender to sign a subordination agreement, agreeing to stay in second place. Request it as soon as you lock your rate; some lenders take two to four weeks and charge a fee. If the home equity lender refuses, you’ll need to pay it off or refinance it as part of the deal.
A new, larger home equity loan can pay off the old one and give you extra cash in one closing, which is usually cheaper than adding a third loan. Compare that with keeping your current loan and opening a small HELOC for the new need, especially if the new expense comes in stages. Interest on the extra cash is deductible only if it goes into the home.
A refinance requires qualifying again, which is hard when money is tight. Call your current lender and ask about a loan modification, a temporary forbearance or a term extension. A HUD-approved housing counselor can help you prepare the request for free. Missing payments on a home equity loan can lead to foreclosure even if your first mortgage is current.
If a home equity payment strains your budget in retirement, a reverse mortgage through the FHA’s Home Equity Conversion Mortgage program can pay off existing liens and remove the required monthly payment, as long as you live in the home and keep up taxes, insurance and maintenance. It has higher upfront costs and the balance grows over time. A HUD-approved counseling session is required before you apply.
If the combined balance on your loans is close to or above your home’s value, most lenders won’t refinance a second mortgage. Your options shrink to modifying the loan with your current lender, paying the balance down, or waiting. Ask your current lender before paying for an appraisal elsewhere.
Removing a co-borrower from a home equity loan generally requires refinancing it in the remaining owner’s name alone, since lenders rarely release a borrower otherwise. The remaining owner has to qualify on their own income. A divorce decree assigning the debt doesn’t change who the lender can collect from.
Usually don’t refinance. Your home equity loan is paid off from the sale proceeds at closing, and most refinances need three or more years to recover their closing costs. If you’re under a prepayment penalty period, check whether it applies on sale too.
When a Home Equity Refinance Hits a Snag
Most refinance problems show up at the same few points in the process. Here’s how to get past each one.
| What happened | Likely reason | Do this first | Then |
|---|---|---|---|
| Appraisal came in low | Value below your estimate | Ask for a reconsideration with recent sales | Borrow less or try another lender |
| Declined for DTI | Payments too high vs. income | Pay down a card or car loan | Ask about a longer term |
| First lender won’t subordinate | Policy or risk limits | Ask in writing for the reason | Fold the HE loan into the refinance |
| Unexpected prepayment fee | Early payoff clause | Read the note’s payoff section | Check it against federal caps |
| Closing costs higher than quoted | Loan Estimate changed | Compare the Closing Disclosure line by line | Ask which fees had tolerance limits |
| Lender won’t respond | Service problem | Put requests in writing | File a CFPB complaint |
What’s the rate and APR, in writing? What are the total closing costs, and can any be paid by the lender? Is the appraisal full or automated, and who pays if it falls short? What’s the maximum combined loan-to-value? Is there a prepayment penalty or a recapture of waived costs? How long does closing take? If I’m refinancing my first mortgage later, will you subordinate?
Our Verdict
Your current rate is about a point or more above today’s offers, you’ll keep the loan past the break-even point, and you can keep the same or a shorter term. A new home equity loan from a lender with low closing costs is usually the cleanest route.
Your first mortgage rate is already near or above today’s rates, or you need to remove a borrower or escape an adjustable rate. Compare blended rates before you decide.
You took the loan within the past year, you’ll sell within a few years, your home’s value has dropped, or the payment is a hardship. Ask your lender about a modification instead of a refinance in that last case.
Questions people still ask
Can I refinance a home equity loan with the same lender?
Often, yes, and existing lenders sometimes offer lower fees to keep you. Compare their offer with at least two others, since loyalty pricing isn’t always the best price.
How long does it take to refinance a home equity loan?
Commonly two to six weeks, depending on the appraisal and the lender. When a new lender is involved, add the three-business-day cancellation period before funds are released on a primary residence.
Can I refinance a home equity loan into a HELOC?
Yes. A HELOC can pay off the loan, and its average rate is lower right now. You’d be accepting a variable rate that follows the prime rate, which rose in September, and possibly interest-only payments during the draw period.
Can I refinance a home equity loan with bad credit?
It’s difficult. Most lenders want scores in at least the mid-600s for a second mortgage. If your score has dropped, ask your current lender about a modification, or work on your credit for six to twelve months before shopping.
Does refinancing restart my loan term?
Only if you choose a new term of the same length. You can usually pick a term that matches or shortens your remaining years, which is how you make sure a lower rate actually saves money.
Can I refinance a home equity loan on a rental or second home?
Some lenders allow it, but fewer of them, usually with higher rates and lower loan-to-value limits than on a primary residence. The three-day cancellation right generally applies only to your principal dwelling.
What happens to my old home equity loan at closing?
The new lender sends the payoff amount directly to your old lender, which then releases its lien. Keep making payments on the old loan until you have confirmation it’s paid in full, so a timing gap doesn’t create a late payment.
Can I refinance a home equity loan to a shorter term?
Yes, and it’s one of the surest ways to save. A shorter term raises the monthly payment but cuts total interest sharply, and lenders sometimes price shorter terms slightly lower.
Should I wait for rates to fall before refinancing?
Nobody can time rates reliably, and Federal Reserve officials have signaled more increases rather than cuts. If the numbers work today, waiting risks losing the opportunity. If they don’t, set a target rate, check offers every few months, and put any spare cash toward principal in the meantime, which lowers your balance and makes a future refinance cheaper.
Can I deduct closing costs on a home equity refinance?
Most closing costs aren’t deductible. Points paid on a refinance used to improve your home are generally deducted over the life of the loan if you itemize. Ask a tax professional about your situation.
How this page was checked. Mortgage rates come from Freddie Mac’s weekly survey released October 22. Home equity loan and HELOC averages come from Bankrate’s national survey for mid-October and Mortgage Research Center data reported October 21. The prime rate reflects the Federal Reserve’s September 16 decision. Equity figures come from ICE Mortgage Technology’s Mortgage Monitor. Cancellation rights, disclosure timing and prepayment penalty limits follow Regulation Z; tax treatment follows IRS rules as made permanent by recent law. Payment, blended-rate and break-even examples are our own calculations. Your lender’s disclosures are the final word.
This page is independent and not affiliated with any lender. It is general information, not legal, tax or financial advice.
Key sources: Freddie Mac · Consumer Financial Protection Bureau · Federal Reserve · IRS · HUD