Can you refinance your mortgage if you have a HELOC, or refinance the HELOC itself?

Summary

Yes to both, with conditions. A HELOC can be paid off with a new line or loan, though closing the old line early can cost you money. Refinancing the first mortgage while keeping the HELOC usually needs the HELOC lender to agree to stay in second place, and if it refuses you may have to pay the HELOC off first. Rolling the HELOC into a new first mortgage is possible too, but under Fannie Mae's rules that is treated as a cash-out refinance unless the HELOC money was used to buy the house.

Replacing the HELOC

The common trigger is the end of the draw period. Some plans then ask for the whole balance at once, and the CFPB's HELOC booklet says you must be ready to cover that balloon payment "by refinancing it with the lender, getting a loan from another lender, or some other means." It adds that a line of credit from another lender can be used to pay off the original one, and that "application fees and other fees may apply for the new loan."

The old line can charge you on the way out. The CFPB lists "a cancellation fee – a fee for terminating the HELOC early, usually within the first two or three years." FourLeaf Federal Credit Union structures its no-closing-cost HELOC the same way: it pays closing costs on the first $500,000, but they "must be repaid by the borrower(s) if the HELOC is closed within first 36 months of account opening." FourLeaf puts those costs at $500 to $15,000. Move a FourLeaf line after 30 months and that repayment comes off whatever the new rate saves.

Once the new line is open, federal law gives you three days to cancel it in writing, and the lender has to return the fees you paid, application and appraisal fees included.

Refinancing the first mortgage and keeping the HELOC

Here the question is lien order. The HELOC sits behind your current mortgage. Replace that mortgage and the new loan would, on its own, record after the HELOC. Fannie Mae requires "execution and recordation of a resubordination agreement" when subordinate financing stays in place through a refinance, which is a document putting the HELOC back in second position. The exception is a state whose law lets the second lien keep its old position automatically.

The HELOC lender does not have to sign. In the CFPB's words, "HELOC lenders can refuse to allow you to refinance your first mortgage loan," and in that case you "may need to pay off the HELOC" before the refinance can close. A refinance quote with a HELOC on the house therefore depends on two lenders, and the second one sets part of the timeline.

Rolling everything into one new mortgage

Fannie Mae sorts these by what the second lien paid for. Paying off "a purchase money second with no cash out" makes the deal a limited cash-out refinance. Paying off a second that was not used to buy the home makes it a cash-out refinance "regardless of whether additional cash out is taken."

That label matters. A limited cash-out refinance caps the cash back to the borrower at the greater of 1% of the new loan or $2,000, so $3,000 on a $300,000 loan and $2,000 on a $150,000 loan. A cash-out refinance brings its own rules: a first mortgage being paid off must be at least 12 months old, and at least one borrower must have been on title for six months.

So a borrower who used a HELOC for a kitchen and folds it into a new $300,000 mortgage is doing a cash-out refinance, even without a dollar of new cash. How that compares with keeping a separate home equity loan is its own question, covered in the cash-out refinance comparison.

Sources

Written by Kaz (pen name). Figures are copied from providers' published pages on the dates shown. We have not used these products. Corrections: contact form.