Wondering if a Home Equity Line of Credit (HELOC^) is a good way to pay off your mortgage? You can do many things with a HELOC, but there are some risks you need to consider before attempting to use this type of loan to pay off your mortgage.
What is a HELOC?
A HELOC is a revolving line of credit that is secured by the equity you’ve built up in your home. A HELOC has two periods: the draw period and the repayment period.
During the draw period (often 3 to 10 years long), you can borrow money up to your approved loan amount. HELOCs also often have an “interest only” period during which you only pay interest. Newrez’s HELOC interest only period is the same as its draw period.
During the repayment period (often 10 to 20 years long), you aren’t allowed to borrow any more money and you repay the principal you used with interest.
If you are approved for a HELOC, this payment is separate from your monthly mortgage payment that includes taxes and insurance.
When Should I Use a HELOC?
HELOCs could be a great financing solution for you if you’re looking for a tool that gives you the flexibility to make draws at your convenience. While other financing options give you a single lump sum payment up front—for instance, a cash-out refinance† or a home equity loan††—a HELOC could be better-suited for someone whose expenses are less predictable.
One popular way to use a HELOC is to pay down higher-interest debt, such as credit card debt or personal loans. You can also use a HELOC to fund home renovations or pay off student loans.
Learn more about HELOCs here.
Should I Use a HELOC to Pay Off My Mortgage?
You may be able to use your HELOC to pay off a second mortgage, though many HELOCs may not allow you to pay the mortgage on your primary residence this way. Apart from this, there are several reasons using your HELOC this way might not make financial sense, unless you fit a very specific set of circumstances. Here are some important things to consider:
- HELOCs Generally Carry Higher Interest Rates Than Traditional Mortgages1: If you’re considering applying for a HELOC for the purpose of paying off your mortgage, you need to understand the costs. HELOC rates follow the Wall Street Journal® Prime Rate, which has historically outpaced typical mortgage rates.
- HELOCs Have Variable Interest Rates: In the event you secure a HELOC when the Prime Rate is low, there is no guarantee it will stay that way. HELOC interest rates change with the Prime Rate, unlike a conventional mortgage which carries a fixed interest rate throughout your mortgage term (unless you elect to refinance† or have an adjustable rate mortgage). You may have heard of a “fixed-rate HELOC”—learn more about that here.
- Look Closely at Your Equity: Using a HELOC to pay off your mortgage may only make sense when you’ve already paid a substantial amount into your equity, or are nearly done paying off your mortgage. This is because lenders usually cap HELOC borrowing at 80% of your home’s appraised value, minus any outstanding mortgage debt.
- Be Prepared for Fees: HELOCs may come with annual fees or other charges. Additionally, check your mortgage to find out whether yours carries a prepayment penalty.
Use Your Home Equity Wisely
A HELOC could be a convenient way for you to pay down debt or fund large expenses. But due to interest rates and other factors, you may want to take a moment to weigh the costs before using a HELOC to pay off a mortgage.
If you’re thinking about ways to pay off your mortgage and get the most out of your equity, you can always reach out to a Newrez mortgage expert. A mortgage check-up is quick, easy and no-obligation.
References:
1 HELOC Rates 2025: Current Home Equity Line of Credit Rates
The Wall Street Journal® is a registered trademark of Dow Jones & Company, Inc. and is not affiliated with Newrez LLC.
^This HELOC is an open-end line of credit where 75% of the approved full credit limit (minus the origination fees) will be drawn at the time of closing. Additional draws may be available after a 90-day period within the first 3 years not to exceed the available credit limit. Actual rates available to you may vary based on several factors including your credit score and combined loan-to-value. Loan amounts range from $50,000 to $350,000. We may determine home value and resulting equity through independent data sources and automated valuation models. Only available for eligible borrowers and property types. Not all applicants will be approved, pre-approval is based on data you have provided and certain assumptions that must be verified and subject to underwriting approval. Only available to existing Newrez serviced first lien mortgage customers on owner occupied properties. Not available in all states or territories. Contact Newrez for more information.
This is not a commitment to lend. All loan programs are subject to credit, underwriting, and property approval. Programs, rates, terms and conditions are subject to change without notice. Other restrictions apply.
