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

Home equity lending products have come to the forefront of homeowner funding sources as rates for home equity loans and home equity lines of credit (HELOCs) have steadily declined over the past year or so. While both are materially lower than what's available with credit cards and personal loans, home equity loans have higher rates than HELOCs right now, on 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 more than two full percentage points lower than where they were in September 2024, according to Bankrate. 

The low rates HELOCs offer right now can benefit homeowners in multiple ways. First, they provide a relatively cheap way to open a substantial line of credit if a homeowner has enough equity. Second, homeowners with home equity loans with rates above 8% may see HELOCs' sub-8% rates and wonder if this May might be the time to refinance their loan into a HELOC. 

Refinancing a home equity loan into a HELOC could be a good idea for some homeowners this May, while it may not be a good fit for others. We talked with experts to find out when it does and doesn't make sense.  

Secure a low HELOC rate here now. 

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

Here are the scenarios in which refinancing a home equity loan into a HELOC in the coming weeks might and might not be a good idea. 

Why refinancing your home equity loan into a HELOC makes sense this May

For some homeowners, their home equity loan rate is a key factor in whether they should refinance this May, in part because the Federal Reserve could cut rates this summer, says Melissa Cohn, regional vice president at William Raveis Mortgage. 

"Anyone who took a home equity loan over the course of the past couple of years is probably paying a rate that's somewhere in the 8 to 9% range," she says. "With the hope and expectation that the Fed will cut rates, HELOCs become more appealing."

While the Fed isn't expected to cut rates when they meet this May, rate cuts are 61.6% likely in June and 94.9% likely in July, according to the CME Group's FedWatch tool. But even if rate cuts don't happen in May, it's still worth it to refinance into a HELOC if your home equity loan rates are in the 8% to 9% range, Cohn says. 

"You might as well get in while you can because you'll be there when the rate drops," she says. "If you refinance in May, you can take advantage of the lower rate in June. (Also), with a HELOC, you'll have the ability to take advantage of the rates as they move downward this year."

Another reason why a homeowner might want to refinance a home equity loan into a HELOC this May is if a homeowner wants more flexibility out of their lending product, says Nicollette Chapman, senior vice president of mortgage data solutions at housing tech and data firm Zonda. 

For example, spring is a popular time for home renovations. A HELOC gives you the flexibility to draw from your line of credit when you intermittently buy supplies and tools and only repay the interest on what you borrow (until your draw period ends). 

Flexibility is a big reason why Steve Hill, a mortgage broker with SBC Lending, thinks it could be a good idea to refinance a home equity loan into a HELOC this May.

"You would want to refi your home equity loan into a HELOC if you want to be more flexible with your home equity," Hill says. "So if you have a big project coming up, kids going to college, or anything that might require multiple draws, it might be nice to have the flexibility of a HELOC."

Learn more about refinancing into a HELOC today. 

Why refinancing your home equity loan into a HELOC doesn't make sense this May

Just like how there are homeowners who are a good fit for refinancing a home equity loan into a HELOC this May, there are certain kinds of homeowners who should avoid doing so. For example, if you're near the end of paying off your home equity loan, it may be worth it to stick with your loan instead of refinancing it into a HELOC, Cohn says.

"If you would expect to pay the loan off in the next 12 to 18 months, you may be better off paying the loan off than bearing the cost of the refinance," she says. HELOC closing costs range from 2% to 5%. A HELOC without closing costs might make the refi worth it, but very few lenders offer them, Cohn says. 

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

"Borrowers should take care to purposefully evaluate the reasons why they are considering refinancing a home equity loan into a HELOC," she says. "Refinancing a loan can be costly, so ensure the benefits justify the cost."

Additionally, homeowners with low credit scores may want to avoid refinancing this May, Cohn says. A HELOC lender may charge you a rate that's significantly higher than today's 7.94% average HELOC rate if your credit score is below 660, for example. Improving your credit score first can help you earn a lower rate, in some cases, Cohn says. 

The bottom line

With HELOC rates more than half a percentage point below home equity loan rates, refinancing a home equity loan into a HELOC this May could be a smart decision. Homeowners who got their home equity loan with a rate of 8% to 9% might secure substantial savings with a HELOC refinance this May, especially if Fed rate cuts materialize this summer. Conversely, you may want to hold off on the refinance  if you're near the end of your home equity loan term or your credit score is below 660, as the latter could not only jeopardize your ability to refinance but could also result in rates that are much higher than what's likely to be offered with a HELOC both in May and in the months that follow.