A home equity line of credit provides homeowners the flexibility to use their home's equity as needed for remodeling projects, paying emergency bills or other endeavors. However, if your HELOC has an adjustable interest rate the periodic changes can cause drastic increases in your monthly payments. This can make it difficult to make the payments each month and even harder to pay off the debt all together. Mortgage refinance loans generally carry lower interest rates than HELOCs, so it might be a good idea to consider refinancing your line of credit into a fixed-rate mortgage to save money.
Determine the outstanding balances on both your first mortgage loan and the HELOC. If you don't have a current statement, your lender can provide you with the current payoff amount. The refinance loan amount must equal the original mortgage's balance plus the HELOC's balance. You can borrow more to pay off other bills or for miscellaneous purposes if you have enough equity.
Look for lenders who offer cash-out refinance loans. You don't have to use the same lender as your original mortgage or HELOC to refinance. Pick the lender that offers the terms that best fit your needs and complete a loan application.
Provide the lender with any additional information that's requested of you, such as proof of income. Wait for the lender to make the approval decision. It's based on your credit history, income, debt-to-income ratio and the home's appraised value.
Schedule a date to close the loan. Review the loan documents carefully before you sign them, and bring up any questions or concerns.
Confirm that the necessary loan documents have been filed after the closing. The lender must provide documents -- commonly known as satisfactions or releases in most states -- stating that that the original mortgage and HELOC have been paid in full. You should receive a copy of these by mail, but you can also find out from the county clerk or recorder if the documents were filed.
- If you don't want to completely refinance, your lender might agree to transfer your adjustable rate line of credit into a fixed-rate home equity loan.
- You must pay closing costs on the refinance loan just as on the original mortgage. Typically the fees equal 3 percent to 6 percent of the total loan amount. Take this into consideration when determining how much you will save through refinancing.