How to use a HELOC to pay off a mortgage

After years of making mortgage payments, you’ve built up considerable equity in your home. That equity isn’t just a number on paper — it’s actual value you can put to work right now. Using that equity to open a home equity line of credit (HELOC) and pay off your existing mortgage can create more breathing room in your budget or even save you on interest costs.

Let’s explore the pros and cons of using a HELOC to pay off a mortgage so you can decide whether this strategy is right for you.

What is a HELOC?

A HELOC works differently than a typical mortgage. Instead of a lump sum, you get a revolving line of credit (similar to how a credit card works) that uses your home’s equity as collateral.

During the draw period, which usually lasts 5–10 years, you can borrow and repay as needed while only making interest payments. This differs from a home equity loan, where you get the full loan amount right away and start making payments toward both the principal and the interest immediately.
After the draw period of a HELOC ends, the repayment period starts. This period usually lasts 10, 15, or 20 years, during which you can’t borrow anymore and must pay back both principal and interest on the cash you used. Unlike home equity loans, HELOCs have variable interest rates.

So, can you pay off your mortgage with a HELOC? The answer is yes. But is it smart to use a HELOC to pay off a mortgage?

That depends on your personal financial situation. If you’ve built up a lot of equity and your remaining mortgage balance is relatively low, using a home equity line of credit to pay off your mortgage might be a wise choice.

Better lets you explore HELOC options quickly and easily. You can get pre-approved in as little as three minutes, and the straightforward application process helps you understand your options so you can decide what works best for you.

How to use a HELOC to pay off your mortgage in 7 steps

Does the HELOC strategy sound like the right choice for you? Here’s how to get the best deal and the smoothest experience.

1. Estimate how much your home is worth

Make a solid estimate of your home’s current value. Check recent sales of similar homes in your neighborhood, look at your property tax assessment, or use online home valuation tools. This gives you a realistic picture of the equity you have to work with.

2. Double-check your credit score

Like any loan, your credit score is a critical factor when applying for a HELOC, so review your credit reports before getting started. A higher score typically means better interest rates and loan terms. If you spot any errors on your reports, dispute them immediately to potentially boost your score.

3. Shop around and choose a lender

Your current mortgage company may not be the best choice for your HELOC. Compare rates, fees, and terms from multiple lenders. The differences between offers can save you thousands over the life of your loan.

4. Get your paperwork together

When you’re ready to apply, gather all your financial documents. These may include:

— Recent pay stubs
— Tax returns
— Bank statements
— Mortgage information
— Proof of homeowners insurance

Having these ready can streamline the approval process.

With Better, you can get pre-approved in as little as three minutes just by answering a few questions to start. You won’t have to do a credit check or upload any paperwork until after you receive your cash estimate and decide you want to move forward.

5. Turn in your application

Most lenders offer online applications, making it easier than ever to apply for a HELOC. Fill out the application for your chosen lender and send it off.

Better’s application is all online, takes just a few minutes, and has no credit impact!

6. Get your home appraised

Most lenders will require a professional appraisal of your home during the application process. This confirms your property’s value and helps determine how much you can borrow. Better may be able to appraise your home via a tool called an Automated Valuation Model, or AVM, which cuts down on fees and allows you to access your cash faster. To learn more about HELOC appraisals, read here.

7. Close the deal and pay off your mortgage

The whole process typically takes two to six weeks from application to closing. Once approved, you’ll sign the final paperwork and pay any closing costs (with Better, closing costs are rolled into the loan so you don't won't have any upfront out-of-pocket costs). Now, you can use your new HELOC funds to pay off your mortgage.

Looking for a faster option? Better offers a One Day HELOC, which allows you to get a decision in 24 hours, and cash in 7 days n. Better’s HELOC also allows you to borrow up to 90% of your home’s equity, up to $500,000. The streamlined online application takes just minutes to complete, making it one of the quickest ways to access your home equity and pay off your mortgage.

Pros and cons of using a HELOC to pay a mortgage

Using the HELOC strategy to pay off a mortgage has distinct benefits and drawbacks. Consider these factors before filling out an application:

Pros

Access to revolving credit

A HELOC lets you borrow, repay what you owe, and borrow again throughout the draw period. That means you can pay off your mortgage and still access that equity as cash later without applying for a new loan.

Flexible payments

During the draw period, you only need to make interest payments on your HELOC. These monthly payments could be significantly lower than your current mortgage payments, which require you to pay both principal and interest every month.

Potential for lower interest rates

HELOC interest rates are variable, meaning they may dip lower than fixed mortgage rates. If your current mortgage has a high interest rate, replacing it with a lower-rate HELOC can save you money right away.

Cons

Interest rates can climb

A variable interest rate that seems appealing now can also increase over time. If market rates rise, your HELOC payments could end up higher than your original mortgage payment.

Fees

Some HELOCs come with annual maintenance fees, prepayment penalties, or other fees that your existing mortgage might not have. Fortunately, not all lenders charge these fees — another reason to shop around.

Not tax-advantaged

Mortgage interest is often tax-deductible if you itemize your deductions, whereas HELOCs have limited tax advantages. You might still be able to deduct interest if you use the funds for home improvements, but paying off another loan doesn’t qualify. Consult with a tax professional about your specific situation.

Qualifications for applying for a HELOC

Thinking about using a HELOC to pay off your mortgage? Here are the key qualifications lenders look for.

— Home equity requirements: You’ll need to own at least 15–20% of your home outright. The more equity you have, the more you can potentially borrow.
— Credit score considerations: Most lenders require a minimum credit score of 660, but you’ll get better interest rates with scores above 700.
— Debt-to-income ratio limits: Your debt-to-income ratio (DTI) needs to be 43% or lower for most lenders. This means your total monthly debt payments can’t exceed 43% of your monthly income.

You could qualify for a Better HELOC with a DTI of up to 50% and a credit score as low as 640.

HELOC alternatives for paying off a mortgage

Does the HELOC method really work when paying off a mortgage? It can, especially if you have a high home equity and a low remaining mortgage balance. If your financial situation is different, you still have options.

Pay extra on your current mortgage

The simplest alternative is to pay more on your existing mortgage. By making extra payments and asking your lender to apply them directly to the principal, you shorten the life of your loan and reduce the total interest you’ll owe over time.

Consider a home equity loan instead

If you like the idea of tapping your equity but want more predictability than a HELOC offers, a home equity loan might be the answer. You’ll get a fixed interest rate and consistent monthly payments from day one. The downside is that some lenders require upfront closing costs similar to your original mortgage. With Better, you can roll closing costs into the loan so there are no up-front costs.

To learn more about the different between HELOCs and home equity loans, click here.

Look into refinancing options

Refinancing options like a cash-out refinance will replace your current mortgage with a completely new loan, often with different terms and rates. This approach works especially well if your credit score has improved since you took out your original mortgage. Just mind the closing costs, which typically run between 2–5% of the loan amount.

If you’re considering this route, use a refinancing calculator to determine whether this option works for you.

Use your home equity Better

Using a HELOC to pay off your mortgage gives you a flexible way to tap into your home’s value while potentially saving on interest or creating more manageable monthly payments.

Ready to see how Better can connect you with a HELOC that fits your financial goals? Just spend three minutes completing the online application to see if you qualify. If approved, you could borrow up to $500,000 against your home’s equity and have funds deposited in your account in as few as seven days. No lengthy waiting periods, no complicated paperwork, and no hidden fees — just a straightforward path for putting your home’s value to work and paying off your mortgage on terms that work for you.