Using a cash-out refinance to pay off a HELOC

Most HELOC rates are variable, so your payment can rise when rates go up. Many HELOCs also start with an interest-only draw period. When that ends, you begin repaying principal and the payment can jump.

A cash-out refinance pays off both your first mortgage and the HELOC with a new fixed-rate first mortgage. You end up with one loan and one predictable payment.

• Your first mortgage rate is close to today's rates
• Your HELOC rate keeps rising
• Your draw period is ending and payments are about to jump
• You'd like one payment instead of two
• You also want extra cash for another goal

If your first mortgage has a rate well below today's rates, refinancing it means giving up that rate on your whole balance. In that case, a fixed-rate home equity loan may be a better fit. It replaces only the HELOC and leaves your first mortgage alone.

CapCenter offers fixed-rate home equity loans from $50,000 to $250,000, with 15, 20 or 30-year terms, on single-family primary residences and second homes. It may be possible to pay off an existing HELOC in second position as part of that closing.

It depends on the loan program and your HELOC history. Under common conventional rules, paying off a HELOC may count as a limited cash-out refinance if the HELOC was used to buy the home, or if you haven't drawn more than a small amount in the past year. Otherwise, it's usually treated as cash-out, which can affect pricing and limits. Your loan consultant can tell you which applies.

When a refinance pays off your HELOC, the lender usually requires the line to be closed so it can't be drawn again. If you like having a line of credit available, weigh that before you decide.

CapCenter offers cash-out refinances and home equity loans with ZERO Closing Costs (restrictions apply). Escrow deposits and prepaid interest aren't covered. Compare your total monthly payment, the rate on your whole balance and the total interest over the life of each option.