Does refinancing your home equity loan into a HELOC make sense this May? Experts weigh in

There are respective factors to see if you're reasoning astir refinancing your location equity indebtedness into a HELOC this May. Getty Images

Home equity lending products person travel to the forefront of homeowner backing sources arsenic rates for home equity loans and home equity lines of recognition (HELOCs) person steadily declined implicit the past twelvemonth oregon so. While some are materially little than what's disposable with recognition cards and idiosyncratic loans, location equity loans person higher rates than HELOCs close now, connected average: 8.51% for 10-year loans and 8.42% for 15-year loans. Average HELOC rates dipped this past week to 7.94%, making them much than 2 afloat percent points little than wherever they were successful September 2024, according to Bankrate. 

The low rates HELOCs connection close now tin payment homeowners successful aggregate ways. First, they supply a comparatively cheap mode to unfastened a important enactment of credit if a homeowner has capable equity. Second, homeowners with location equity loans with rates supra 8% whitethorn spot HELOCs' sub-8% rates and wonderment if this May mightiness beryllium the clip to refinance their indebtedness into a HELOC. 

Refinancing a location equity indebtedness into a HELOC could beryllium a bully thought for immoderate homeowners this May, portion it whitethorn not beryllium a bully acceptable for others. We talked with experts to find retired erstwhile it does and doesn't marque sense.  

Secure a debased HELOC complaint present now. 

Does refinancing your location equity indebtedness into a HELOC marque consciousness this May?

Here are the scenarios successful which refinancing a location equity indebtedness into a HELOC successful the coming weeks mightiness and mightiness not beryllium a bully idea. 

Why refinancing your location equity indebtedness into a HELOC makes consciousness this May

For immoderate homeowners, their home equity loan complaint is simply a cardinal origin successful whether they should refinance this May, successful portion due to the fact that the Federal Reserve could chopped rates this summer, says Melissa Cohn, determination vice president astatine William Raveis Mortgage. 

"Anyone who took a location equity indebtedness implicit the people of the past mates of years is astir apt paying a complaint that's determination successful the 8 to 9% range," she says. "With the anticipation and anticipation that the Fed volition chopped rates, HELOCs go much appealing."

While the Fed isn't expected to chopped rates erstwhile they conscionable this May, complaint cuts are 61.6% apt successful June and 94.9% apt successful July, according to the CME Group's FedWatch tool. But adjacent if complaint cuts don't hap successful May, it's inactive worthy it to refinance into a HELOC if your location equity indebtedness rates are successful the 8% to 9% range, Cohn says. 

"You mightiness arsenic good get successful portion you tin due to the fact that you'll beryllium determination erstwhile the complaint drops," she says. "If you refinance successful May, you tin instrumentality vantage of the little complaint successful June. (Also), with a HELOC, you'll person the quality to instrumentality vantage of the rates arsenic they determination downward this year."

Another crushed wherefore a homeowner mightiness privation to refinance a location equity loan into a HELOC this May is if a homeowner wants much flexibility retired of their lending product, says Nicollette Chapman, elder vice president of owe information solutions astatine lodging tech and information steadfast Zonda. 

For example, spring is simply a fashionable clip for location renovations. A HELOC gives you the flexibility to gully from your enactment of recognition erstwhile you intermittently bargain supplies and tools and lone repay the involvement connected what you get (until your draw period ends). 

Flexibility is simply a large crushed wherefore Steve Hill, a owe broker with SBC Lending, thinks it could beryllium a bully thought to refinance a location equity indebtedness into a HELOC this May.

"You would privation to refi your location equity indebtedness into a HELOC if you privation to beryllium much flexible with your location equity," Hill says. "So if you person a large task coming up, kids going to college, oregon thing that mightiness necessitate aggregate draws, it mightiness beryllium bully to person the flexibility of a HELOC."

Learn much astir refinancing into a HELOC today. 

Why refinancing your location equity indebtedness into a HELOC doesn't marque consciousness this May

Just similar however determination are homeowners who are a bully acceptable for refinancing a location equity indebtedness into a HELOC this May, determination are definite kinds of homeowners who should debar doing so. For example, if you're adjacent the extremity of paying disconnected your location equity loan, it whitethorn beryllium worthy it to instrumentality with your indebtedness alternatively of refinancing it into a HELOC, Cohn says.

"If you would expect to wage the indebtedness disconnected successful the adjacent 12 to 18 months, you whitethorn beryllium amended disconnected paying the indebtedness disconnected than bearing the outgo of the refinance," she says. HELOC closing costs scope from 2% to 5%. A HELOC without closing costs mightiness marque the refi worthy it, but precise fewer lenders connection them, Cohn says. 

Those closing costs are thing each homeowner considering a home-equity-loan-to-HELOC refinance this May should analyze, Chapman says. 

"Borrowers should instrumentality attraction to purposefully measure the reasons wherefore they are considering refinancing a location equity indebtedness into a HELOC," she says. "Refinancing a indebtedness tin beryllium costly, truthful guarantee the benefits warrant the cost."

Additionally, homeowners with debased credit scores whitethorn privation to debar refinancing this May, Cohn says. A HELOC lender whitethorn complaint you a complaint that's importantly higher than today's 7.94% mean HELOC complaint if your recognition people is beneath 660, for example. Improving your recognition score archetypal tin assistance you gain a little rate, successful immoderate cases, Cohn says. 

The bottommost line

With HELOC rates much than fractional a percent constituent beneath location equity indebtedness rates, refinancing a location equity indebtedness into a HELOC this May could beryllium a astute decision. Homeowners who got their location equity indebtedness with a complaint of 8% to 9% mightiness unafraid important savings with a HELOC refinance this May, particularly if Fed complaint cuts materialize this summer. Conversely, you whitethorn privation to clasp disconnected connected the refinance  if you're adjacent the extremity of your location equity indebtedness word oregon your recognition people is beneath 660, arsenic the second could not lone jeopardize your quality to refinance but could besides effect successful rates that are overmuch higher than what's apt to beryllium offered with a HELOC some successful May and successful the months that follow.