Yes, you can refinance your HELOC with another bank, but the process is different from refinancing a mortgage

A HELOC (home equity line of credit) is a loan secured by your home that lets you borrow money as you need it, up to a set limit. When you refinance it, you're closing that line of credit and opening a new one with a different lender. The new bank pays off your existing HELOC balance, and you start borrowing from them instead.

The main reason people refinance a HELOC is to get a better interest rate or lower fees. If rates have dropped since you opened your original HELOC, or if you've found a bank with lower annual fees, moving to another lender can save you money. You might also refinance if your current bank is raising rates or if you want to switch to a fixed-rate option instead of a variable one.

The catch is that refinancing a HELOC involves a new appraisal of your home and a new credit check, both of which cost money and take time. You'll also need to have enough equity in your home — most banks won't refinance a HELOC if you owe more than 80 to 85 percent of what your home is worth. Before you start the process, make sure the savings are worth the cost.

Key Takeaways

  • Refinancing a HELOC means closing your current line of credit and opening a new one with a different bank, which the new bank uses to pay off your old balance.
  • You'll need a home appraisal and a credit check, both of which cost money and typically take two to four weeks to complete.
  • Most banks require you to have at least 15 to 20 percent equity in your home, meaning you owe no more than 80 to 85 percent of its current value.
  • Compare the interest rate, annual fees, and closing costs of the new HELOC against what you're currently paying before you decide to move.
  • If you're in the middle of using your HELOC, the new bank will pay off what you owe, and you'll start making payments to them instead.

What happens to your current HELOC when you refinance

When you refinance, your new lender contacts your current bank and pays off your HELOC balance in full. Your original line of credit is then closed. If you still have an outstanding balance — money you've borrowed but haven't paid back — that balance transfers to the new HELOC. You don't get to keep both lines of credit open.

This matters if you were using your original HELOC as a safety net. Once it closes, that credit line is gone. If you need to borrow money again, you'll have to use the new HELOC from your new bank. Make sure the new bank's terms — their interest rate, fees, and borrowing limits — work for you before you close the old one.

The documents and steps you'll need to complete

Refinancing a HELOC follows roughly the same steps as getting a new one in the first place. You'll start by contacting banks and asking about their HELOC rates and fees. Once you find one you want to move to, you'll fill out a formal process. The bank will order a home appraisal (usually $300 to $700) and run a credit check.

You'll need to provide proof of income, such as recent pay stubs or tax returns, and documentation of your current debts. The bank will also ask for a copy of your current mortgage statement and details about your existing HELOC — the balance, the interest rate, and the credit limit. Have these documents ready before you explore, as it speeds up the process.

Once the appraisal comes back and the bank confirms you have enough home equity, you'll move to the closing stage. You'll sign the new HELOC agreement and any other paperwork the bank requires. At closing, the new bank's funds are used to pay off your old HELOC, and your new line of credit becomes active. The whole process typically takes three to six weeks.

How to compare HELOCs before you refinance

The interest rate is important, but it's not the only number that matters. Some banks charge an annual fee just for having the HELOC open, even if you don't borrow any money. Others charge closing costs, which can range from $0 to several hundred dollars. A few banks waive these fees if you meet certain conditions, like keeping a minimum balance in a checking account with them.

Look at the credit limit the new bank is offering. If your current HELOC has a $50,000 limit and the new bank will only offer $40,000, you're losing flexibility. Also check whether the interest rate is fixed or variable. A fixed rate stays the same for the life of the HELOC. A variable rate can change based on market conditions, which means your monthly payment could go up or down.

Create a straightforward comparison: write down the interest rate, annual fee, closing costs, and credit limit for each bank you're considering. Then calculate how much you'd pay in interest and fees over the next year or two at each bank. If the new bank's total cost is lower than your current bank's, refinancing makes financial sense. If the savings are less than a few hundred dollars, the cost and hassle of refinancing might not be worth it.

When refinancing a HELOC doesn't make sense

If you don't have enough home equity, you can't refinance. Most banks won't lend you more than 80 to 85 percent of your home's value. If you owe $300,000 on a home worth $350,000, you have about $50,000 in equity and can refinance. If you owe $320,000 on that same home, you're at 91 percent of the value, and most banks will turn you down.

Refinancing also doesn't make sense if you're planning to sell your home soon. The closing costs and appraisal fees can easily run $500 to $1,500, and you won't have time to recoup that through lower interest payments. Similarly, if your current HELOC has a very low rate locked in, refinancing to a higher rate — even if it's still competitive — is a step backward.

If you're in the middle of a major financial problem, like a job loss or a missed payment, refinancing will be difficult. Banks check your credit report and income before approving a new HELOC. A recent missed payment or a drop in income can disqualify you or result in a much higher interest rate.

The difference between refinancing and getting a home equity loan instead

A home equity loan is different from a HELOC. A home equity loan gives you a lump sum of money all at once, and you pay it back in fixed monthly payments over a set period, usually 5 to 15 years. A HELOC is a line of credit — you borrow only what you need, when you need it, and you can borrow again as you pay it down.

If you currently have a HELOC and you refinance it with another bank, you're getting a new HELOC, not a home equity loan. But some people use refinancing as an opportunity to switch. If you have a HELOC you're not using much, or if you prefer the certainty of a fixed payment, you might refinance into a home equity loan instead. The process process is similar, but the terms are different.

What to do if your bank denies your refinance request

If a bank denies your refinance request, ask why. The most common reasons are not enough home equity, a credit score that's too low, or income that's too unstable. If it's a credit score issue, you can work on improving your score over several months and try again. If it's an equity issue, you'll need to wait until your home value rises or you pay down your mortgage.

You can also try a different bank. Different lenders have different standards. One bank might require a credit score of 700, while another will work with a score of 650. Shop around before you give up. If multiple banks turn you down, it may not be the right time to refinance, and that's okay — you can revisit the idea in a year or two.

Frequently Asked Questions

Will refinancing my HELOC hurt my credit score?

Yes, but only temporarily. The bank will do a hard credit inquiry, which lowers your score by a few points for a few months. Opening a new credit account also lowers your score slightly. However, once you close your old HELOC and start paying on the new one, your score typically recovers within six months.

Can I refinance my HELOC if I'm still using it?

Yes. If you have an outstanding balance, the new bank pays it off and you start making payments to them. You can continue borrowing from the new HELOC right away. Just make sure the new bank's credit limit is high enough for your needs.

What if my home's value has dropped since I opened my HELOC?

A lower home value means less equity, which can make refinancing harder or impossible. The bank will order a new appraisal, and if your home is worth less than before, you may not have enough equity to refinance. You can still try other banks, as they may have different equity requirements.

Do I have to refinance with a bank, or can I use a credit union?

Credit unions offer HELOCs and refinancing just like banks do. In fact, credit unions sometimes offer lower rates and fees than traditional banks. If you're a member of a credit union, ask them about their HELOC options before you approach a bank.

How long does the refinancing process take?

Most refinances take three to six weeks from process to closing. The appraisal usually takes one to two weeks, and underwriting takes another one to two weeks. If the bank needs additional documents from you, it can take longer. Ask the bank for a timeline when you explore.