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Home Equity Lines of Credit (HELOCs) have become a popular way for homeowners to access flexible funds using their home’s equity. However, as interest rates rise and balloon payments loom, many homeowners are seeking sustainable exit strategies. One of the most effective ways to transition out of a HELOC is refinancing into a first-lien fixed-rate mortgage. This article breaks down the process, benefits, and considerations of this strategy—and how you can get started.
What Is a First-Lien Fixed Loan?
A first-lien fixed loan is a traditional mortgage where the lender has the primary claim on your property and the interest rate remains constant over the life of the loan. When you refinance into a first-lien fixed loan from a HELOC, you’re replacing your variable-rate line of credit with a more predictable, stable payment plan.
Why this matters: With many HELOCs structured as interest-only during their draw period and then converting to variable principal and interest payments, borrowers may face financial strain as the repayment period begins.
Why Refinance Out of a HELOC?
1. Stabilize Monthly Payments
HELOCs typically have adjustable rates, making them vulnerable to rising interest rates. Refinancing into a fixed-rate mortgage protects you from future rate increases, offering budgeting peace of mind.
2. Avoid Payment Shock
HELOC repayment periods often result in higher monthly payments. Transitioning to a fixed loan helps avoid the sudden jump in required payments when the interest-only period ends.
3. Consolidate Debt
By rolling your HELOC into a new first-lien mortgage, you may be able to consolidate other debts at a lower interest rate. This not only simplifies repayment but can also improve your credit utilization ratio.
Steps to Refinance Your HELOC Into a First-Lien Fixed Loan
Step 1: Evaluate Your Equity and Credit
Before applying, ensure you have sufficient home equity—typically at least 20%—and a strong credit profile to qualify for competitive rates.
Step 2: Shop for Lenders
Compare refinance offers from multiple lenders. Look at interest rates, closing costs, and loan terms. Online mortgage comparison tools can help streamline this process.
Step 3: Submit an Application
Once you’ve chosen a lender, submit your mortgage application. Be prepared to provide:
- Income verification
- Credit history
- Property valuation
- Existing HELOC details
Step 4: Close the Loan
After approval and underwriting, you’ll proceed to closing. At this stage, your new first-lien mortgage will pay off the HELOC, and you’ll begin your fixed-rate repayment plan.
Pros and Cons of Refinancing Into a First-Lien Loan
| Pros | Cons |
| Stable monthly payments | Closing costs apply |
| Potentially lower interest | May restart amortization |
| Consolidates debt | Home equity requirements |
Alternatives to Refinancing Your HELOC
If refinancing isn’t ideal, consider these alternatives:
- HELOC Modification: Some lenders allow you to convert your HELOC to a fixed-rate repayment plan.
- Second Mortgage: If your first mortgage has favorable terms, a second-lien fixed loan could be an option.
- Loan Payoff Strategy: Budgeting aggressively to pay off the HELOC before the repayment period hits.
Frequently Asked Questions (FAQ)
Can I refinance my HELOC if I have low equity?
Possibly. Some lenders offer high LTV (Loan-to-Value) refinance options, but they often come with higher interest rates or mortgage insurance requirements.
Will refinancing hurt my credit?
A refinance typically results in a small, temporary dip in your credit score due to a hard credit inquiry and the opening of a new loan account. However, in the long term, it may improve your score by lowering credit utilization.
How soon can I refinance out of a HELOC?
Most lenders require a seasoning period of 6-12 months after opening a HELOC before you can refinance. Check with your lender for specific requirements.
Read Next
- HELOC for Investors: A Powerful Tool for Real Estate Growth
- HELOC Closing Costs A Comprehensive Guide
Refinancing your HELOC into a first-lien fixed-rate loan offers long-term stability, especially in a rising rate environment. It’s a smart move for homeowners who want predictable payments and long-term savings. As always, speak with a licensed mortgage professional to review your individual situation.
Ready to make the switch? Schedule your refinance consultation today.
Unlock Your Home Equity with Figure
- Approval in 5 minutes. Funding in as few as 5 days
- Borrow $20K-$400K
- Consolidate debt or finance home projects
- Fastest way to turn home equity into cash
- 100% online application
Our advice is based on experience in the mortgage industry and we are dedicated to helping you achieve your goal of owning a home. We may receive compensation from partner banks when you view mortgage rates listed on our website.
