Yes, you can refinance a home equity loan — and in some cases, you should
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Yes, you can refinance a home equity loan — and in some cases, you should
Kat Aoki January 16, 2026 at 2:41 AM
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Yes, you can refinance a home equity loan — and in some cases, you should (David Gyung via Getty Images)
Yes, you can refinance both home equity loans (HELoans) and home equity lines of credit (HELOCs) — and if you borrowed during the 2023 rate spike, now might be the time to look into it.
Home equity rates range from 7.97% to 8.22% APR in early January, still well below the 9% to 10% rates many borrowers were paying just two years ago. If you tapped your equity back then, refinancing could save you thousands.
While rates aren’t heading back to 2021’s lows, they're expected to keep dropping in 2026, likely landing somewhere between 7.3% and 7.75% APR as the Fed continues cutting its benchmark rate.
So when does refinancing make sense? The old rule was to wait until at least 1% lower than you’re paying now. That still holds, but with nuance for today’s market. Even a 0.5% drop can be worth it if closing costs are low and you plan to keep the loan for several years.
Here’s when to consider home equity refinancing and the steps that get you there.
Why refinance your home equity loan: rates, terms, flexibility
Refinancing your home equity loan — whether it's a traditional home equity loan or a HELOC — offers several benefits that can save you time and money, particularly if you’re approaching retirement.
Lower interest rates
The most compelling reason to refinance is simple: a lower rate means less money out of your wallet, both monthly and over the life of your loan.
Take a $100,000 home equity loan at 10% interest over 30 years. This is what refinancing might save you:
1.5% rate drop to 8.5%: $39,118 in total interest savings, plus $109 less a month.
2% rate drop to 8%: $51,772 in total interest savings, plus $144 less a month.
2.25% rate drop to 7.75%): $58,018 in total interest savings, plus $161 less a month.
📉 A note for HELOC borrowers: If you have a variable-rate HELOC, you’re already benefiting from recent Fed rate cuts — most HELOCs are tied to the prime rate, which means your rate automatically adjusts with Fed moves. Refinancing typically makes more sense for fixed-rate home equity loans or converting your HELoan to a fixed-rate HELOC for stability and peace of mind. Learn more in our guide to the Fed and home equity loans.
Better loan terms
It’s not just lower rates — refinancing also adjusts your loan’s terms. You might extend your repayment timeline to lower your monthly payments, or shorten it to pay off the debt faster and save on interest. (Though you can always pay down a loan early without refinancing by making extra payments toward your principal.).
For HELOC borrowers, refinancing usually means either getting a new HELOC or converting to a fixed-rate home equity loan for predictable payments. But check with your current lender first: Many offer rate conversion options that allow you to lock in a fixed rate on part or all of your HELOC balance without going through a full refinance.
Other refinancing considerations
Besides rate and term changes, refinancing might make sense if you need to:
Tap additional equity. If your home has appreciated, you can refinance for a larger amount to fund home improvements or consolidate high-interest debt.
Switch loan types. Convert a variable-rate HELOC to a fixed-rate home equity loan for stability, or vice versa if you want the flexibility to draw funds as you need them.
Remove a coborrower. Life changes like divorce may require refinancing to take someone off the loan and transfer full responsibility to yourself.
Consolidate multiple loans. If you’re juggling both a HELOC and a home equity loan, refinancing can combine them into one monthly payment.
🔍 Read more: 5 fast ways to build home equity — one that won't cost you a dime
The refinancing process: What to expect
You have several ways to refinance when you’re ready, each with its own set of costs, benefits and potential drawbacks.
Refinancing your HELoan
Replacing your existing home equity loan with a new home equity loan makes sense if you can secure a meaningfully lower interest rate than your current loan.
💰 Rough costs: Closing costs range from 2% to 5% of the loan amount, with some lenders promoting low- or no-closing-cost options.
✅ Main benefit: Replaces your loan with potentially better rates and terms while keeping the same loan structure you're familiar with.
❌ Main drawback: You'll need to qualify all over again, and closing costs can eat into your savings if you don't plan to keep the loan long enough to recoup them.
We asked an expert: Should you refinance a home equity loan right now?
“At this point in time, a HELOC probably makes more sense than a home equity loan — since the rates with a HELOC float based on the current prime rate, you can take advantage of lower rates without even having to think about a refinancing. You'd use the new HELOC to pay off your existing home equity loan, and lenders will factor in that your current debt will be eliminated when evaluating your qualification.”— Sarah DeFlorio, vice president of mortgage banking at William Raveis Mortgage
Refinancing a home equity loan to a HELOC
You can replace your existing home equity loan with a variable-rate HELOC — something the industry calls a replacement transaction. Use the funds from your HELOC to pay off your home equity loan, effectively converting your fixed-rate loan to a variable-rate credit line.
💰 Rough costs: Minimal or no fees as long as you keep the line open for a set amount of time, typically 36 months.
✅ Main benefit: Pay off your home equity loan and potentially secure a lower rate on a revolving credit line.
❌ Main drawback: Because variable rates shift, you could end up paying a higher rate if the Fed raises rates again, however unlikely.
While you aren’t technically refinancing your home equity loan, it achieves the same goal by unlocking access to better rates and more flexible repayment terms.
🔍 Read more: Fact vs. fiction: 8 home equity myths that could cost you thousands
Refinancing your HELOC
Replace your existing loan with a new HELOC from a lender offering lower rates, longer draw periods or better credit limits based on your home’s current value.
💰 Rough costs: Often minimal or no closing costs if you keep the line open for a set period, typically 36 months.
✅ Main benefit: Quick process that gets you better terms with the same credit line flexibility.
❌ Main drawback: You may pay closing costs on your original HELOC if you refinance before 36 months.
If a fixed rate is your goal, ask your lender about rate conversion options that lets you “fix” all or a portion of your HELOC to a fixed rate while you pay it off.
Refinancing to a cash-out mortgage
With a cash-out mortgage, you refinance your primary mortgage for more than you currently owe and use the extra cash to pay off your home equity loan or HELOC, consolidating both loans into one monthly payment.
💰 Rough costs: Closing costs range from 2% to 5% of the new mortgage amount, which can be substantial on a larger loan.
✅ Main benefit: Simplifies your finances with one payment and may offer the lowest overall interest rate since primary mortgages come with lower rates than HELoans or HELOCs.
❌ Main drawback: Higher upfront costs, plus refinancing extends your repayment term — potentially cost you more total interest over time, especially if you’re already well into paying off your original mortgage.
🔍 Read more: Cash-out refinance vs. home equity loans: Which best fits your goals?
What you’ll need to qualify for refinancing
Eligibility requirements mirror those you faced for your original loan: solid credit, sufficient equity and manageable debt.
Credit score
Most lenders require a score of at least 620 to refinance, with the best rates going to borrowers with 680+. If your score has improved significantly since you took out your original loan, you might qualify for better terms.
Home equity
You'll need at least 15% to 20% equity after any refinance. Lenders calculate this based on your total mortgage debt — including your primary mortgage, any secondary mortgages and any cash you're taking out if doing a cash-out refinance.
Income and debt-to-income ratio
Lenders verify stable income to support the loan and that your total monthly debt payments don’t exceed 43% of your gross monthly income. This includes your mortgage, the new home equity loan payment and all other monthly debts like car loans and credit cards.
Lenders will verify that your income — including wages, retirement income, pensions and Social Security — can support the payments throughout the loan’s terms. They can’t discriminate based on age, but they can assess whether your total income is adequate for the full repayment period..
Your home’s current value
Most lenders require a new appraisal to determine your home's current market value and available equity. If your home's value is worth less than when you took out your original loan, you might have less equity than you’re expecting — which could limit refinancing options or require more cash up front.
If you’re close to retirement, talk with a financial advisor about how refinancing fits into your overall strategy.
🔍 Read more: The truth about no-appraisal home equity loans: What borrowers
What refinancing costs (and when it’s worth it)
Understanding the true cost of refinancing is crucial for determining whether it makes financial sense for your budget and goals. When closing costs apply, they often include application, origination, attorney, title insurance and recording fees.
Closing costs and fees
Home equity loan refinance
May or may not require closing costs, depending on lender and terms
HELOC refinance
No or low closing costs, with promotional rates on new lines
Cash-out refinance
2% to 5% of new mortgage amount, with higher-rate “no closing cost” loans available
Appraisal costs
Refinancing often requires a new home appraisal costing from $300 to $500. Many lenders waive this fee on HELOCs and select home equity loans. If you have excellent credit or a long-term relationship with your bank, you might not pay this fee.
Determining your breakeven point
Not sure refinancing makes sense? Divide your total closing costs by your monthly savings. If refinancing costs $3,000 in fees but saves you $150 per month, you'd break even in 20 months.
Key is making sure your monthly savings and long-term interest reduction outweigh the upfront costs of refinancing.
🔍 Read more: Home equity loan vs. HELOC: Which is best for borrowing?
When refinancing a home equity loan can make sense
Refinancing isn't right for everyone. Here are three situations where it typically pays off.
When to consider it
The payoff
Rate drop
Current rates are at least 0.5% to 1% lower than your existing rate
Save thousands in interest over your loan term
Improved credit
Your score jumped 50+ points since you took out the original loan
Qualify for significantly better rates and terms
Switch loan types
Your want to convert your fixed-rate loan to a HELOC (or vice versa)
Gain flexibility or lock in stable payments
When to skip refinancing your home loan
Refinancing isn't always the right choice. Here’s when to pause.
You’re planning to move soon. If you’ll sell in the next two to three years, you may not break even on closing costs, if they apply.
Rates have climbed since you borrowed. If current home equity rates are higher than what you’re paying now, refinancing may cost you more (not less).
Your credit score dropped. A lower score means higher rates. You could end up paying more than you do right now.
You’re close to paying off the loan. Refinancing restarts the clock on your loan term. If you’re 10 years into a 15-year loan, extending the repayment timeline could mean paying more total interest, no matter how low the rate.
🔍 Read more: Should you use your home equity to pay off high-interest debt?
How to shop for the best refinancing rate
Cast a wide net — different lenders offer different rates, terms and advantages:
Compare APRs, not just interest rates. APR includes both interest rate and fees, giving you the trust cost of borrowing.
Get quotes from at least three lenders. Shop across different lender types to find the best deal:
Credit unions often have the lowest rates, especially if you’re already a member. Personalized service and flexible underwriting compared to larger institutions.
Online lenders offer fast applications, though you'll sacrifice face-to-face service. Marketplaces like Lending Tree allow you to compare multiple lenders at once.
Traditional banks may offer relationship discounts if you have existing accounts.
Look beyond the rate. Compare closing costs, loan terms and features like rate locks or conversion options.
🔍 Read more: Mortgage rate locks: What they are, how they work — and why timing is everything
Other ways to lower your home equity costs
If refinancing isn’t the right fit, these options might help you lower costs or manage payments differently from a full refinancing process.
Personal loans
Personal loans don’t use your home as collateral, which means less risk if you can’t repay. You’ll pay higher interest than home equity products, but you’ll get faster processing and fixed payments. It’s best for borrowers with excellent credit who need less than $50,000.
0% credit cards for smaller purchases
For smaller balances, transferring debt to a 0% introductory APR credit card buys you 12 to 21 months interest-free. This only works if you can pay off the balance before the promotional rate expires — otherwise, you’ll face high credit card interest rates.
Loan modification
Facing financial hardship like job loss of illness? Contact your current lender about modifying your existing loan. Your lender may lower your rate, extend your term or adjust other conditions without requiring the cost and hassle of a full refinance.
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Personal loan vs. home equity loan: Which is the best fit for your financing?
About the writer
Kat Aoki is a finance writer who's written thousands of articles to empower people to better understand technology, fintech, banking, lending and investments. Her expertise has been featured on sites like Lifewire and Finder, with bylines at top technology brands in the U.S. and Australia. Kat strives to help consumers and business owners make informed decisions and choose the right financial products for their needs.
Article edited by Kelly Suzan Waggoner
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Source: “AOL Money”
