Can You Refinance a HELOC Without Touching Your First Mortgage?
You have a home equity line of credit (HELOC) and you want to improve its rate, payment, or term. But you also have a primary mortgage and want to leave it as-is. Can you?
Fortunately, you can refinance your HELOC only without touching your first mortgage.
How To Refinance Just Your HELOC
A HELOC refinance is similar to a primary mortgage refinance. You replace your old one with a new one.
This doesn’t affect your first mortgage at all. Plus, you don’t have to let your primary mortgage holder know about your plans to refinance the HELOC.
The reverse isn’t true though: you have to alert your second mortgage holder when you refinance your first mortgage only. The HELOC lender must issue a subordination agreement.
But when you’re replacing your HELOC only, the process is:
Decide on your goal. Do you want a lower rate, a fixed loan, or more access to cash?
Shop around for the best HELOC for your goals
Calculate your new HELOC loan amount. It should be enough to cover the existing balance plus any additional funds needed
Apply with your chosen HELOC lender. Inform them that you are paying off an existing HELOC.
Submit necessary paperwork to the lender
Sign final loan documents. Make sure the former HELOC will be paid off and closed
Close the new HELOC
HELOCs are quicker and easier than refinancing a first mortgage, so the whole process may only take a few weeks.
Why Refinance a HELOC?
You might consider refinancing a HELOC in the following situations.
Your credit improved: HELOC lenders issue a rate based on the prime rate such as prime plus one-half or prime minus one. You could qualify for a lower rate if your credit improved recently
Your home value went up: You may have access to higher lending limits or lower rates based on your home’s higher value and lower HELOC loan-to-value.
You are about to enter the amortization period: Typically after 10 years, a HELOC enters a 10-20 year payoff period in which you need to pay principal and interest. This can increase your payment significantly.
No more access to funds: You may not have access to funds if you’re in the payoff period or you’ve reached your lending limit.
Convert a HELOC to a home equity loan or vice versa, depending on whether your goal is access to funds or a steady, secure payment.
Alternatives to Refinancing Your HELOC
You may not need to refinance your HELOC at all.
HELOC lenders typically create their own rules for products and have more flexibility than first mortgage lenders to change the terms.
Before you start your HELOC refinance, contact your existing lender and ask for the following options, depending on your goals.
Line increase: Some lenders can increase your HELOC limit based on your new home value.
Lock in a portion of the HELOC: If you’re worried about variable rates, some lenders let you lock in some or all of your HELOC balance into a fixed rate.
Request a rate reduction: Some smaller HELOC lenders like local banks and credit unions may agree to a rate decrease for HELOC borrowers with perfect payment histories.
Consolidate: You might find that it makes sense to refinance your first and second mortgages into a new first mortgage. Check a blended rate calculator to find out.
Do nothing: HELOC rates rise and fall with the prime rate, which is tied to the federal funds rate. If the Fed is expected to cut rates soon, your HELOC rate may fall with no action on your part.
Why Do Homeowners Want to Refinance Their HELOCs Only?
Homeowners who purchased or last refinance before mid-2022 likely have a primary mortgage rate below 4%. While it’s possible for them to consolidate their HELOC and first mortgage into one, they would lose that low rate.
Many of these homeowners got a home equity line of credit to complete home repairs, consolidate debt, or other purposes.
But their home values went up or they are otherwise in a better position than when they got their HELOC, warranting a lower rate, higher lending limit, or better terms.
These homeowners can replace their HELOC or home equity loan with another one without losing the once-in-a-lifetime rate on their primary mortgage.
Start Your HELOC Refinance
HELOCs are one of the easiest and cheapest home loan types available. Sometimes you don’t even need an appraisal. The barrier to refinancing is very low.
Tim Lucas is the editor and Lead Analyst for MortgageResearch.com. Tim spent 11 years in the mortgage industry and now leverages that real-world knowledge to give consumers reliable, actionable advice. He has been featured in national publications such as Time, U.S. News, MSN, The Mortgage Reports, and more.
