The HELOC or home equity loan was used to purchase the property.The new loan will be a conventional/conforming loan issued by a Fannie Mae- or Freddie Mac-approved lender.Here are the requirements if you want to pay off a HELOC with a rate-and-term refinance instead of a cash-out loan: This can be an advantageous repayment option, since rate-and-term refis come with lower rates and fewer restrictions.
Paying off a second mortgage is sometimes considered a “rate-and-term” refinance rather than a cash-out refi. That means you can use the proceeds to pay off a HELOC just as easily as you can stick that lump sum of cash into your bank account.Īt closing, your escrow company simply cuts a final payment to your HELOC lender, (assuming you have enough equity) and you never have to make two monthly mortgage payments again.Ĭonsider paying off a HELOC with rate-and-term refinancing Luckily, mortgage lenders have no restrictions on how you can use proceeds from a cash-out refinance. Lenders have no restrictions on how you can use proceeds from a cash-out refinance. The potential solution? A cash-out refinance. It’s not uncommon for the payment to double. Plus, the rate might go up at that point too. However, the prime rate has been at historic low levels since the early 2000s, and it’s likely to stay relatively low for years to come.Īdditionally, many homeowners are close to their HELOC turning 10, at which point they transition from an interest-only payment to a fully amortized one. Many choose refinancing as a HELOC repayment option because they are worried that their variable interest rates will suddenly skyrocket, since it’s probably based on the current prime rate. In fact, thousands of homeowners pay off HELOCs with cash-out refinancing each year. Here’s how.Ĭan you use cash-out refinance to pay off a HELOC? Mortgage rates are low, and it could be a good time to trade in that home equity loan for a new low fixed rate. If you have a home equity line of credit (HELOC) or a home equity loan, you’ve probably considered refinancing it into one loan using a cash-out refinance.Īccording to Freddie Mac, more than $200 billion in home equity has been taken out to consolidate second mortgages this decade alone. Decem8 min read Refinancing two loans into one