Why refinancing your home equity loan into a HELOC makes sense now

A home equity loan can be a powerful borrowing tool in a variety of economic climates, but in the economy of recent years, when interest rates surged and home values rose alongside them, it became one of the few cost-effective ways to borrow a large sum of money. Even today, with interest rates on personal loans and credit cards in the double digits, home equity loan rates average comfortably below 9% for qualified borrowers. 

That said, the loan, which comes via a lump sum delivered to homeowners, isn't quite as flexible as what can be secured with a home equity line of credit (HELOC). And financial flexibility is in demand now, thanks to sustained stock market volatility, higher-than-preferred inflation and interest rates frozen at an elevated level. 

Against today's economic backdrop, then, it may make sense to refinance your home equity loan into a HELOC (and, yes, it can be done). Below, we'll break down three reasons why this could be the smart move to make right now.

Start by seeing how low of a HELOC rate you could refinance into here.

Why refinancing your home equity loan into a HELOC makes sense now

Here are three big reasons why refinancing your home equity loan into a HELOC makes sense right now:

Interest rates are lower

The average HELOC rate as of April 8 is just 7.90%. The average home equity loan rate, however, is 8.40%, a full half a percentage point higher. And average home equity loan rates are elevated further when tied to the 10-year repayment period (8.53%) and the 15-year repayment period (8.44%). Meantime, HELOC interest rates just declined below 8% last week, while home equity loan rates, at the same time, increased. 

While half a percentage point difference in rates may not seem like a lot on paper, it could add up to significant savings over time, especially when spread out over a decade or more. So if you want to save money on your monthly payments, refinancing into a lower-rate HELOC could be the smart way to do so now.

Get started with a HELOC online today.

Interest rates could decline even further

As noted, home equity loan rates increased in early April while HELOC rates declined. But the recent HELOC rate drop isn't an anomaly. Rates on the line of credit have been consistently declining for more than a year now. In fact, they're down more than two full points just since September 2024. In the first few months of 2025, they hit 18-month and multiple two-year lows, respectively. 

And thanks to a variable interest rate that changes each month for borrowers, existing homeowners didn't need to take any action to realize those savings as rates change independently. So, if you think rates will continue to decline and you want to position yourself for future rate drops, the primary way to do so via home equity borrowing is by refinancing into a HELOC.

A repayment structure change is needed

A home equity loan offers homeowners a lump sum of money, which can be advantageous in a variety of ways, but it also comes with the need for immediate repayments, which can be problematic in today's economic climate. A HELOC, however, doesn't have the same issues as payments will only be required to be made on the amount of money actually used – not the full line of credit approved for. Plus, there's a draw period in which interest-only payments are required, which can be another advantage for borrowers right now.

The bottom line

With a lower interest rate, a variable rate likely to decline further in the future and the need for a repayment structure change, refinancing your home equity loan into a HELOC could be a smart and valuable move to make now. Still, you're leveraging your most prized financial asset – your home – in either situation. And you could lose it to the lender with either product if you're ultimately unable to make your repayments. So it's important to calculate your costs on both, in addition to closing costs, to determine which is the most cost-effective move for your finances both now and into the future.

Learn more about refinancing your home equity loan online today.