Many homeowners today are sitting on significant equity in their homes: about $270,000 on average as of Q4 2022, according to CoreLogic.  If you’re one of them, you might be wondering if it makes sense to use a home equity line of credit (HELOC) to pay off your mortgage — especially if the remaining balance is fairly small.

Here’s what to know about paying off your mortgage with a HELOC, and the risks that come with doing so.

Key takeaways

  • Using the funds from a HELOC to help pay down or pay off your mortgage can be a strategic move, especially if you have a lot of equity in your home and don't have much left on your mortgage.
  • Remember that a HELOC is a form of debt. Opening one to pay off your home loan will still leave you with an outstanding balance and interest — and unlike most mortgages, HELOCs have variable interest rates, which can increase.
  • Alternatives to HELOCs include home equity loans or just making bigger or extra payments on your existing mortgage.

How can a HELOC help you pay off your mortgage?

A HELOC is a flexible line of credit that allows you to leverage — that is, borrow against — your equity, the percentage of your home you own outright.  Based on your equity level, you’ll be approved for a certain amount — similar to the credit line on a credit card — which you can tap during the HELOC’s draw period, which typically lasts 10 years. After that draw period, you’ll need to repay what you borrowed (with any interest owed), usually over a 20-year time frame.

You can use these funds for any purpose — including mortgage payments. So with this strategy, essentially you’re using your ownership stake in your home to pay off what you still owe on your home.

Is it a good idea to pay off your mortgage early with a HELOC?

Prepaying your mortgage can certainly save you money in the long run. However, using a home equity line of credit to do so has limitations.

First of all, lenders typically only allow you to borrow up to 80 percent (sometimes 85 percent) of your home’s value as a line of credit. Depending on your specific financials, this might not be enough to pay off your mortgage entirely.

Second of all, whatever funds you use from the HELOC need to be paid back: The repayment period typically lasts 20 years. If you’re close to paying off your current mortgage, you might not want to commit to repaying another debt over two more decades, especially if you’re nearing or in retirement and on a fixed income. (Of course, there’s no law that says you can’t settle the HELOC balance early, though there may be a prepayment fee to do so.)

But the biggest reason to pause: interest rates. Although they both use your home as collateral for a 30-year term, HELOCs tend to be a more expensive form of financing: currently, their interest rates are hovering around 8 percent, compared to 6.5 percent for the average 30-year mortgage. Also bear in mind that, unlike mortgages, most HELOCs have fluctuating interest rates — and rates have been on the rise since 2022, reflecting the Federal Reserve’s series of rate hikes to contain inflation.

That means interest rates on an older mortgage may remain competitive against a HELOC taken out today. “Variable-rate HELOC customers could easily see their interest rates rise significantly,” says Herman (Tommy) Thompson, Jr., CFP, of Innovative Financial Group in Atlanta. “It’s also unlikely that the interest rate on a [new] HELOC would actually be lower than a mortgage acquired in the past 20 years.”

Pros and cons of using a HELOC to pay off mortgage


  • Flexibility: HELOCs are a more flexible form of financing in that you can borrow only what you need versus the entire amount you were approved for. For instance, if you don’t want to use all of the HELOC funds to pay down your mortgage, you might decide to devote some of the money to home renovations or other expenses. You can also withdraw different amounts at different times.
  • Low or no closing costs: Although HELOC closing costs generally range from 2 percent to 5 percent of the amount you’re borrowing (similar to a mortgage), the expense might be lower compared to a cash-out refinance, since you’re likely borrowing less. Some lenders even offer no-closing-cost HELOCs.
  • Chance for a lower rate: If your current mortgage has a higher interest rate and the HELOC has a lower rate, you can use the funds from the HELOC to pay off your mortgage sooner for less. This depends largely on the broader mortgage market, however — right now, rates are rising on all types of loans, including HELOCs.


  • Variable rate: HELOCs come with a fluctuating interest rate, which means your rate will fluctuate over time based on market conditions. There’s no way to predict whether your rate will move up or down in the future, so you’ll need to be prepared to fit higher payments into your budget.
  • More debt: While the HELOC might pay down your mortgage, you’d also be replacing that debt with another form of debt, and you might end up paying more interest than you would have with your current mortgage. This has implications for your credit score and finances — especially if it’s not helping you save money in the long run.
  • Fees and penalties: Many HELOCs have an annual fee, and some come with a prepayment penalty if you pay it off sooner than the repayment schedule dictates.
  • Tax disadvantage: If you itemize, your mortgage interest is tax-deductible. Your HELOC’s interest may not be if you’re using it for this purpose — generally, you’d need to be using the funds to  “buy, build, or substantially improve the home.” Definitely check with a tax pro.

How to use a HELOC to pay off your mortgage

1. Shop for a competitive rate

Evaluate different options and know what HELOC kind of rate you qualify for. Compare the rates and terms available against your current mortgage to determine whether you would benefit from taking this step.

2. Apply for a HELOC

Once you find a HELOC with terms and an interest rate you accept, you can apply. Typically, you will need 15 to 20 percent equity in your home, a credit score in the mid-600s, and a debt-to-income ratio of 43 percent or less to qualify for a HELOC.

3. Receive your HELOC funds

Expect a processing time of between two and six weeks from when you apply to when you receive access to your line of credit. Once you can access your line of credit, you can borrow against the available equity in your home either over your HELOC’s draw period or all at once.

4. Pay off your mortgage and maintain regular HELOC payments

Assuming you qualify for enough of a HELOC to pay your mortgage balance off in full, you can do so as soon as you have access to your home’s equity. Keep an eye out for documents confirming the closure of your mortgage loan, and focus on staying current with HELOC payments moving forward.

Alternative ways to prepay or pay off your mortgage

If your goal is to repay your mortgage early, you might be better off making extra payments, if possible. You might opt to pay extra in a lump sum, or begin making biweekly payments. Even one more payment a month can speed up the payoff process.

Or, if you need to borrow the funds, consider taking out a home equity loan. With a home equity loan, you’ll get a fixed rate (versus a variable rate with a HELOC), which means your monthly payments won’t change. However, you’re still borrowing money to pay off borrowed money, which isn’t ideal. You’ll also incur closing costs, as a home equity loan is essentially a second mortgage.

Final word on using a HELOC on your mortgage

A home equity line of credit is a powerful resource in your toolkit for consolidating debt. While you may decide that your home’s equity is best used paying off your current mortgage, be sure to push the numbers: key factors include the current state of interest rates,how many years more your mortgage has to run and the size of your outstanding balance. There are many financial goals a HELOC can help you to achieve, but it’s important to weigh the pros and cons, before exchanging one kind of debt for another.

Additional reporting by Meaghan Hunt