You can refinance your home equity loan, but you should consult with a loan officer before you do. Refinancing your home equity loan can lower your monthly payments by getting you access to a lower interest rate or changing the terms of your loan. But, as with any loan, you’ll have to meet the lender’s qualifying standards to do it.
Any time you refinance debt, there’s a short-term and long-term cost-benefit balance that you should consider carefully. For a home equity loan refinance, you have three main options:
- A simple refinance of the home equity loan
- Switching to a home equity line of credit (HELOC)
- A cash-out refinance that consolidates your home equity loan and your primary mortgage into one new loan
When does it make sense to refinance a home equity loan?
It will improve your financial position
Home equity loans are becoming more common, as U.S. homeowners seek to unlock the home equity they’ve earned. According to a 2025 report from the Mortgage Bankers Association, home equity loans and HELOCs were up over 7% in 2024.
In an interesting twist, a lot fewer people were using the money for home renovations (only 46% compared to 65% in 2022), while more were using that cash to consolidate debt (39%, compared to only 25% in 2022). If you’ve used a home equity loan to consolidate debt, it might make sense to refinance into a lower rate or different terms depending on what you need financially.
Rates have dropped by 1% or more
One of the most common reasons that homeowners refinance their home equity loan is because interest rates have dropped. According to 2026 research from Best Interest, rates are predicted to stay flat or only very slightly decline through 2026. Since we’re coming out of a period of historically high interest rates, it’s understandable that you might wonder if it’s worth it to refinance.
Brett Rasmussen, owner of Omaha-based firm Mortgage Specialists, says that refinancing a home equity loan depends on a lot of variables, including “the value of the property, how much is owed, credit rating,” and other factors. But in general, he advises that you probably shouldn’t look into a refinance until “you see about a 1% drop in rates.”
Refinancing into a lower rate means that your monthly payment will be lower. For example, if you took out a 15-year home equity loan in May 2024, you probably got an interest rate around 8.8%. As of February 2026, the average rate on that same loan has fallen to 8.07%.[1] That’s almost a full percentage point.
Let’s say you have a house worth $400,000, and an outstanding mortgage balance of $300,000. Assuming you have excellent credit, taking out a $20,000 home equity loan with a 10-year term, at 8.8%, would translate to a monthly payment of just over $251. Refinancing that loan to the lower rate of 8.07% would get you a slightly lower monthly payment of $243, or slightly lower because you’ve been paying down the principal.
But refinancing would mean taking out a whole new loan, and paying the associated closing costs of 2-5%. Once you take that into account, this level of savings (less than $10 a month) probably isn’t worth it.
“We see lots of lenders sell low rates,” Rasmussen says. “But borrowers don’t [always] review the fees. And many times it doesn’t make sense.”
Jeb Smith, a mortgage broker in Huntington Beach, CA, agrees that you should only refinance “. . . when it solves a problem. Lowering the rate. Converting from variable to fixed for stability. Improving monthly cash flow. Reducing risk. I don’t recommend refinancing just because rates moved. The better question is whether it improves your overall financial position.”
You’ll stay long enough to break even
Another important factor is how long you plan on staying in the home. If you’re going to move in the near future, your total savings on a refinance probably won’t exceed the amount you’ll pay in closing costs. When asked how long the average homeowner would need to stay in their home to make a home equity refinance worth it, Rasmussen says, “For an average loan? Usually two to three years.”
Take the hypothetical loan quoted above. Let’s say you refinanced a $20,000 loan (paid down to $19,000 after a year) from 8.8% down to 7.8%.
You’re going from a $251 monthly payment down to a $229 payment. But if you pay 4% in closing costs, that’s $760 to get in the new loan.
If you’re saving $22 a month, your total savings won’t exceed your closing costs for 35 months—almost exactly three years, just like Rasmussen advised.
“You have to calculate your break-even point,” says Smith. “Divide the total closing costs by your expected monthly savings. If you’re going to stay in the home long enough to exceed that break-even period, it may make sense. If not, you’re likely just moving debt around without real benefit.”
When you’re thinking about how much home equity to access, it can be helpful to look at trends in home prices. The latest report from the Federal Housing Finance Agency, for example, shows that while home prices are up year-over-year nationally around 2%, there are markets that saw big gains, markets that saw zero gains, and markets that saw a decline in prices. If you’re in a cooling market, be cautious when it comes to leveraging your home equity.
You need monthly payment relief
If cash is really tight, there’s a way to lower your monthly payment even if interest rates haven’t dropped. Refinancing your home equity loan into a longer term can lower your monthly payment since you’re spreading your balance over a longer period of time. This type of refinance can be very helpful if you’re having problems with your cash flow and need financial relief.
A home equity loan at today’s rate of 8.07%, over a five-year term, translates to a monthly payment of $406. Refinanced to a ten-year term, that monthly payment goes down to around $243. Refinanced to a twenty-year term, the payment is only around $168.
At longer terms, you’ll end up paying more in total interest, but in the short term they can unlock immediate month-to-month financial relief.
3 ways you can refinance a home equity loan
There are three main options for refinancing a home equity loan:
Refinance just the home equity loan
Replacing your present home equity loan with a new home equity loan with more favorable terms. This does not affect your primary mortgage. “Your first mortgage stays in place,” explains Jeb Smith. “There’s typically a subordination agreement where the first lender agrees to remain in first position. It’s common and generally manageable.”
Switch to a HELOC (home equity line of credit)
Change to a line of credit that allows multiple withdrawals as needed, as opposed to the lump sum of the home equity loan. According to lending expert Bernie Frascarelli, about 80% of HELOCs come with variable interest rates, meaning that the rate rises or falls with the prime rate. Refinancing into a HELOC does not affect your primary mortgage.
Cash-out refinance
This combines your primary mortgage and your home equity loan into one entirely new loan. This replaces both your existing primary mortgage and your existing home equity loan with a new, third mortgage.
| Option | Pros | Cons |
|---|---|---|
| Refinance home equity loan | Can access a lower rate and lower monthly payment Fairly simple (same process as before) | Closing costs and fees can wipe out small savings |
| Convert to HELOC | Variable rate means your rate will fall as interest rates (presumably) decline You will have access to a line of credit, but you aren’t obligated to use it During the draw period, you may not have to make any monthly payments | If interest rates go up again, your variable rate will follow Once draw period is over, you’ll have to make payments on both interest and principal |
| Cash-out refinance | Consolidate all your home debt into one loan Can get you a better rate on both your primary mortgage and your home equity loan | If you have a low interest rate on your primary mortgage, it doesn’t make sense to refinance into a higher rate |
So which option should you choose? That depends on where you think interest rates are going, where you think your cash flow is going in the next 1-5 years, and what kind of interest rate you’re paying right now on your home equity loan and your primary mortgage.
“If you’ve got a first mortgage locked in at 2.75% or 3% from 2020 or 2021, you probably don’t want to touch it,” says Smith. “Giving that up just to clean up a higher-rate second lien usually doesn’t make sense.”
However, if the rate on your primary mortgage and your home equity loan is higher than today’s 6.2%, it’s probably a wise decision to refinance both into a new loan. It’ll simplify your finances, since you’ll only have to make one payment a month, and you’ll save money over the long run by locking in a lower rate.
Talk with a loan officer to make sure you qualify to refinance
You’ll have to qualify for a refinance just like you had to qualify for the original loan. Generally, you’ll need to have the following to qualify:
A good credit score (mid-600s and up)
Standards for home equity loans are a little tougher than the ones for the primary mortgage since the primary mortgage has repayment priority. (That makes a home equity loan slightly riskier.) Ideally, you have a credit score in the 700s but the exact score you need depends on your lender.
Debt-to-income ratio of 43% or less
All your financial obligations should be 43% or less of your gross monthly income. This indicates to the lender that you have enough free cash flow to service your debts. But although this is a safe baseline to shoot for, there is flexibility in this number as well depending on your full financial profile and your lender.
Adequate home equity
This usually means a combined loan-to-value ratio of no more than 85%, which translates to owning 15% of your home outright. This usually shouldn’t be a problem as long as your home hasn’t lost value since you took out the initial loan.
A clean record of repayment
If you’ve missed payments or even been late with a few, this can make your lender reluctant to give you a new loan. You’ll need a reliable financial record to take on more debt.
If you’re ready to see if refinancing your home equity loan makes sense for you, start by talking with Best Interest Financial. We’re highly experienced in the mortgage industry and can find creative solutions that big-box lenders miss. We’re also super fast—we’ll work nights and weekends to get your loan over the finish line. Start by getting a free 60-second quote from Best Interest today.
FAQ about refinancing home equity loans
Should I refinance my mortgage along with my home equity loan?
If refinancing your primary mortgage along with your home equity loan gets you a lower interest rate that translates to significant savings, you should strongly consider it. Always consult closely with a loan officer about the tradeoffs and benefits of this option before you decide.
How much does it cost to refinance a home equity loan?
Refinancing your home equity loan means you’re originating an entirely new loan, so you can expect to pay 2-6% of the total loan value in closing costs. For example, on a $400,000 home, refinancing a $50,000 home equity loan could cost anywhere from $1,000 to $3,000 in closing costs, depending on the lender and fee structure.
How can I get out of a home equity loan?
Within the first three days, you have a legal right of rescission that allows you to cancel the home equity loan without penalty. After that, the only way to get out of a home equity loan is to either pay it off or refinance both your primary mortgage and your home equity loan into a new loan.
Disclaimer: The information provided in this article is for informational and educational purposes only. It is not intended as legal, financial, investment, or tax advice, and should not be relied upon as such. Mortgage rates, terms, products, and eligibility requirements are subject to change without notice and vary based on individual circumstances, credit profile, property type, loan amount, and other factors. All loans are subject to credit approval. This content does not constitute a commitment to lend or an offer of specific loan terms. For personalized mortgage advice and to discuss loan products that may be suitable for your situation, please contact one of our licensed loan officers.