If you qualify and have sufficient equity after refinancing, you may be eligible for a home equity line of credit or HELOC. Refinancing can bring significant savings but may also deplete your cash reserves due to closing costs or unforeseen expenses.
This might leave you wondering, “Can I get a HELOC after refinancing?”
The good news is, in many cases, you can. “You can apply for a HELOC after refinancing your home loan as long as you have sufficient equity in your home,” says Jose Garcia, president and CEO of the Illinois-based Northwest Community Credit Union.
Whether it’s to cover unexpected medical bills, fund home improvements or consolidate debt, a HELOC offers financial flexibility by allowing you to access your home equity when you need it most.
What is a HELOC Loan and How Does It Work?
A HELOC or home equity line of credit, allows you to borrow money using your home as collateral. Unlike traditional loans, a HELOC provides you with a line of credit that you can draw from as needed, much like a credit card. The amount you can borrow depends on factors like your home’s equity, credit score and income.
Let’s break it down with an example:
Imagine your home is appraised at $300,000 and you owe $200,000 on your mortgage. This means you have $100,000 in equity. Mortgage lenders typically allow you to borrow up to 85% of your home’s value minus what you still owe. In this case, you could qualify for a HELOC of up to $55,000.
Calculation:
- Home value: $300,000
- 85% of home value: $255,000
- Amount owed: $200,000
- HELOC available: $55,000 ($255,000 – $200,000)
Garcia also advises people to be aware of extra fees applied to HELOCs. “Make sure to read the details and ask about any up-front costs, annual fees or penalties for early repayment,” Garcia says. “These can add up and affect the overall cost of the loan.”
Two Phases of HELOCs
HELOCs have two phases. The first is a draw period, when you can borrow (or draw) money from your credit line. You typically have a minimum payment during your draw period, which varies by lender and can last up to 10 years.
The second phase is the repayment period. As the name suggests, this is when you must pay off your HELOC and you can no longer borrow money from your credit line. You may have higher payments during this period, which can last up to 20 years. At this point, you may want to refinance again and roll these costs into your mortgage or simply find a better rate.
Many HELOCs come with a variable interest rate that fluctuates monthly, though Garcia says some can be converted to a fixed-rate HELOC. “Switching to a fixed interest rate can provide more stability in your payments,” he says.
How Do I Apply for a HELOC?
Applying for a HELOC after refinancing is a straightforward process if you’re prepared. Follow these steps to ensure a smooth application:
Check Your Credit Score
Use free credit monitoring tools or request your credit report from major bureaus. Aim for a score of 620 or higher to secure better terms.
Calculate Your Equity
Use this formula to estimate your available equity:
Equity = Home Value – Loan Balance
For example, If your home is worth $300,000 and your mortgage balance is $200,000, you have $100,000 in equity.
Compare Lenders
Shop around to find lenders with competitive rates, low fees and excellent customer service. Some lenders may offer discounts for using them after a refinance.
Prequalification
Get prequalified using a soft credit check. This provides an estimate of how much you can borrow without impacting your credit score.
Prepare Documentation
Gather necessary documents, such as:
- Proof of income (e.g., pay stubs, tax returns)
- Recent mortgage statement
- Identification (e.g., driver’s license, Social Security card, passport)
Submit Your Application
Choose the best lender for your needs and submit your application. The lender will review your creditworthiness, equity and other factors to determine approval.
Review Terms
Before signing the agreement, carefully review the loan terms, including interest rates, the draw period and repayment terms.
Types of Home Equity Loans
There are three primary ways to access your home equity: HELOCs, home equity loans and cash-out refinances. Each option has distinct advantages depending on your financial goals.
| HELOC | Home Equity Loan | Cash-Out Refinance | |
| Loan Type | Revolving line of credit | Lump sum loan | New primary mortgage |
| Interest Rate | Variable (may change) | Fixed | Fixed or adjustable |
| Payment Structure | Only pay on borrowed amount | Fixed monthly payments | Combined mortgage payment |
| Flexibility | High – borrow as needed | Less – fixed amount up-front | Medium – one-time cash disbursement |
| Best For | Ongoing or unpredictable expenses | Large, planned expenses | Refinancing while accessing equity |
This table can help you compare your options and determine which product aligns with your financial needs.
We’ve touched on HELOCs already; below are the other two main home equity loans:
Home Equity Loans
Like a HELOC, a home-equity loan allows you to borrow against a percentage of your home’s equity. Unlike a HELOC, you receive the funds as a lump sum. You repay the loan over a set term. This type of loan typically has a fixed interest rate, which never changes. You have the same payment for the life of the loan.
Cash-Out Refinances
HELOCs and home equity loans are like a second mortgage because your home secures them and is in second position after your primary mortgage (the loan you used to buy your home). If you stopped making payments on your home and your lender foreclosed, the sale proceeds would pay off your primary mortgage first and your home equity loan or HELOC second.
With a cash-out refinance, instead of getting a second mortgage, you’re getting a new primary mortgage. Your lender gives you a loan that covers your current mortgage balance plus a percentage of the equity in your home.
Let’s say your home is valued at $150,000 and your mortgage balance is $75,000. You need $15,000 to complete home repairs. You work with a lender and get a cash-out refinance for $95,000. This covers your mortgage, $15,000 for home repairs and $5,000 for closing costs.
These are extremely popular products and you will see quite a lot of advertising around them. Remember, however, that you only want to cash out when you have a specific idea for that money. For example, you might cash out for a huge renovation, knowing you can afford to make those payments and recover the cost if you ever sell the house. You can do the same thing when you want to open a business or something similar. Cashing out a large sum with no plan or in a manner that makes it difficult to repay may be less than advisable.
What is the Waiting Period After Refinancing Before Borrowers Can Apply for a HELOC?
Timing is crucial when applying for a HELOC after refinancing. Your eligibility depends on key metrics like equity, debt-to-income (DTI) ratio and credit score. Here’s what to consider:
- Equity Growth: After refinancing, your equity might decrease if you rolled closing costs into the loan or withdrew cash. Lenders typically require at least 15%-20% equity to qualify for a HELOC. For example, if your home is worth $300,000 and your mortgage balance is $265,000, your equity is 12% – below the threshold. You may need to wait until you’ve paid more principal or your home value increases.
- Credit Score and DTI Ratio: Refinancing can temporarily lower your credit score due to hard inquiries. Maintaining a DTI ratio below 43% improves your chances of qualifying. If your refinance reduced your monthly payments, this could positively impact your DTI.
To optimize your timing, consider these tips:
- Wait a few months after refinancing to allow your credit score to recover.
- Check your loan-to-value (LTV) ratio using this formula:
- LTV = (Loan Balance ÷ Home Value) × 100
- For example, a $200,000 loan balance on a $250,000 home = 80% LTV.
- Consult your lender to explore how soon you might qualify for a HELOC.
When Does It Make Sense to Get a HELOC After a Refinance?
Getting a HELOC after a refinance makes sense in certain situations. It may be beneficial when you need access to additional funds for a specific purpose, such as home improvements, debt consolidation or education expenses. Refinancing allows you to obtain a new mortgage with better terms and potentially access some of the equity in your home.
“If refinancing lowers your monthly mortgage payments, it can improve your DTI, making it easier to qualify for a HELOC,” Garcia says.
Another situation where getting a HELOC after a refinance may make sense is when you want a backup source of funds for emergencies or unexpected expenses. A HELOC can provide you with a financial safety net, allowing you to access funds quickly and easily when needed.
While a refinance can help secure better loan terms and lower interest rates, it involves closing costs and time spent on the application process. In contrast, a HELOC provides flexibility and access to funds without additional refinancing.
Pros and Cons of HELOCs
A HELOC can be a versatile financial tool, but like any credit product, it has its own benefits and drawbacks. Before deciding if a HELOC is right for you, it’s important to weigh the pros and cons to see how they align with your financial goals and current circumstances.
Pros
Here are the benefits of a HELOC:
- Flexibility to draw funds when you need to
- Lower payments during your draw period
- No restrictions on how you use the funds
- Typically, it has a lower interest rate than other options like personal loans
- This type of loan is easier to obtain because you have an existing loan product that backs it up
- HELOCs can be refinanced
Cons
Here are the drawbacks of HELOCs:
- They’re secured by your home, which means that if you stop paying, you could lose your home
- They tend to have variable interest rates, which means that lenders could increase your interest rate
- You have to pay closing costs
- Your payments during your repayment period may be higher than you anticipated
Things to Consider
Before choosing a home equity product, consider which is right for you. If you like flexibility, a HELOC might be best. If you need a lump sum and want predictable payments, a home-equity loan might be better. If you don’t want a second mortgage, a cash-out refinance might be the ideal choice.
Once you know what product you want, look at lenders. Some, like Figure, specialize in HELOCs and refinances. Get quotes from lenders you’re interested in and compare interest rates and closing costs. Consider the service you get from the lender and choose one with competitive rates and excellent service.
Where to Get a HELOC
If you're looking for the best HELOC, look no further than our top lenders list. You can easily find and compare the top options available to suit your needs.
- Best For:Online MortgagesVIEW PROS & CONS:securely through Rocket Mortgage (formerly Quicken Loans)'s website
- Best For:Flexible Mortgage OptionsVIEW PROS & CONS:securely through Angel Oak Mortgage Solutions's website
- Best For:Self-employed BorrowersVIEW PROS & CONS:securely through CrossCountry Mortgage's website
Is a HELOC Right for You?
A HELOC could still be a practical option for accessing your home’s equity even if you've recently refinanced. Its flexibility to draw funds as needed can help you manage unexpected expenses, fund home improvements or consolidate high-interest debt.
However, it’s essential to consider your financial situation, including your equity, budget and the potential variability of interest rates. A HELOC works best when it aligns with a clear financial purpose and fits comfortably within your financial plan.
Why You Should Trust Us
Benzinga has offered investment and mortgage advice to more than one million people. Our experts include financial professionals and homeowners, such as Anthony O’Reilly, the writer of this piece. Anthony is a former journalist who’s won awards for his coverage of the New York City economy. He’s navigated tricky real estate markets in New York, Northern Virginia and North Carolina.
For this story, we worked with Jose Garcia, president and CEO of the Illinois-based Northwest Community Credit Union, which offers multiple financial services, including HELOC loans
Frequently Asked Questions
How soon after refinancing can I apply for a HELOC?
You can technically apply immediately, but lenders may prefer that you wait until your equity increases or your credit score recovers from the refinance.
Can I have both a mortgage and a HELOC?
Yes, but remember that a HELOC is a second lien on your property. You’ll have two monthly payments: one for your mortgage and another for your HELOC.
Does a HELOC impact my credit score?
Applying for a HELOC may result in a hard inquiry, temporarily lowering your score. However, making on-time payments can positively impact your credit over time.
What’s the difference between a HELOC and a cash-out refinance?
A HELOC is a loan type that offers a flexible line of credit with variable interest rates, ideal for ongoing expenses. A cash-out refinance replaces your existing mortgage with a new one, often with fixed or adjustable rates, providing a lump sum up-front.
Sources:
- Jose Garcia, president and CEO of Northwest Community Credit Union
About Anthony O'Reilly
Anthony O’Reilly is an updates editor for Benzinga. He’s won numerous journalism awards for his coverage of the New York City economy and Long Island school district budgets.