St. Louis Mortgage Help

Should You Take Out a HELOC to Pay Off a Mortgage?

Those who understand the basics of a HELOC, or home equity line of credit, tend to sing its praises. They know just how useful those loans can be when you’re trying to remodel your house or have unexpected expenses. But what about using a HELOC to pay off a mortgage? Is this even a good idea?

Since a HELOC is a loan that uses the equity in your house as collateral, it makes sense that you’d want to use it to pay off your mortgage. That would ideally leave you with one single loan. However, there are several pros and cons here that need to be gone over before.

Heloc Vs Mortgage

Before we can start going through the pros and cons of using a HELOC to pay off a mortgage, we first need to explain the differences between these two loans. Although there is no clear winner when comparing HELOC vs mortgage, as both have their good and bad points, both of these loans are quite different. A HELOC is a loan that’s taken out on the equity in your home. This is the amount that’s available when you subtract the amount that you owe on your mortgage from the overall worth of your home. A mortgage, on the other hand, is a loan that’s taken out in order to purchase or refinance a home. Those funds are set into a fixed loan for that single purpose. This makes it quite different than a HELOC, which is designed kind of like a bank account in that you can use the money, pay it back, and then use it again. For this reason, some people wonder if they could use a HELOC to pay off a mortgage. You can always check out our site for these types of tips, or a reputable HELOC information site to keep up to date. The concept of going down to this one single loan is quite appealing. Before you start to contemplate HELOC vs mortgage, it’s important to consider the following points.

How Much Is Left On Your Mortgage?

One important thing to think about before you make your HELOC vs mortgage choice is whether or not you have the funds available on your HELOC in order to pay off your mortgage. Plus, you need to understand that the closer you are to paying off that mortgage, the more your payment amounts go straight to the principle. However, if the overall worth of your home has gone up considerably and your mortgage is fairly small – yet has years left to go – then you could use a HELOC to pay off a mortgage.

Are You Eligible for a Heloc?

Another factor is whether or not you’re eligible for a HELOC as far as your credit is concerned. If you received your mortgage more than seven years ago and have damaged your credit rating since then, you may not be able to take out that additional loan. In this case, then you clearly won’t be able to use a HELOC to pay off a mortgage. This leaves the mortgage as the best option when weighing the HELOC vs mortgage loans.

Other Pros and Cons

On top of the responses to those two questions, there are some additional pros and cons that must be considered when trying to choose whether or not to use a HELOC to pay off a mortgage. Let’s work through them one by one.


  • Once you pay off your mortgage with a HELOC, you can pay down the loan and use those funds for something else.
  • In the beginning, you’ll only have to make interesting payments on the HELOC. This makes it a more attractive option when comparing a HELOC vs mortgage.


  • Your interest rate may vary. The best thing about a traditional mortgage is the fact that it tends to have a fixed rate of interest.
  • There may be prepayment penalties tied to your mortgage loan, making it more expensive to pay off.

The Decision

When trying to choose whether or not to use a HELOC to pay off a mortgage, it’s really up to you. There are a number of different factors, some of which can help you choose which is the most important to pay off first – HELOC vs mortgage. Both have their own sets of pros and cons, although the HELOC is much more flexible.

Posted by Bob Rutledge on May 22nd, 2019 9:05 AM

Loans For Remodeling, Mortgages for Renovation or Fixing Up, Home Loans for Rehabbing, Home Improvement Loans. There are a lot of different options available to you to borrow the funds necessary to complete the project you have in mind for your home or soon to be home.

You currently own your home and want to make improvements or upgrades? You are looking at purchasing a new home and are considering a fixer upper? There are home loans and mortgages available to you!

The FHA 203k Renovation Mortgage is the best known mortgage option to help a home owner or home buyer with home remodeling and renovation funding. The FHA 203k is a first mortgage that combines the sales price and the renovation costs as a combined new first mortgage when you are purchasing a new home. If you already own your home the FHA 203k would be used as a refinancing or replacement of your current mortgage.

The FHA 203k can be used to make just about any home improvement you can consider or think of. Want to add a second story to your ranch? Looking to upgrade all your appliances? Add a new room? Expand your garage? Landscaping? If you would like to learn more about the FHA 203k visit my webpage;

One of the great advantages of the FHA 203k is that you don't always need to have equity in your home. The FHA 203k will allow you to borrower 10% over the after completion appraised value. So if you are short on equity to start use this program to make equity building improvements and build new equity in your home.

The Fannie Mae HomeStyle Renovation Mortgage, this is the near FHA 203k equal but a conventional renovation mortgage option. All the improvements that you can make with the FHA 203k you can do with the HomeStyle Renovation Mortgage. If you are considering getting a swimming pool you cannot go with the FHA 203k but you can get it done with the Fannie Mae Home Style Mortgage.

The HomeStyle mortgage can be used as a refinance or replacement of your current mortgage or it can be used as a new purchase mortgage for those homes that need some extra work to make them your home. The minimum down payment or equity position is 5% or the appraised value or sales price.

The big advantage the HomeStyle Renovation Mortgage has over the FHA 203k is mortgage insurance. If you have 20% equity in your home or a 20% down payment you will not have a monthly mortgage insurance payment. If your loan to value ends up being more than 80% but less than 95% there is a possibility of not having a monthly mortgage insurance payment, mention it if you are interested in this option.

Cash Out Refinance, no matter what type of mortgage you have on your home you can refinance to get cash out of the equity you have in your home. Each mortgage, except USDA, has their loan to value limitations based on a new appraisal, FHA is 85%, VA is 100%, and Conventional is 80% loan to value based on a new appraisal in many instances.

Home Equity Second Mortgages and Loans, many times these are referred to as Home Equity Lines of Credit or Home Equity Second Mortgages. Professionally, I do not have the ability to provide any of these mortgage programs but I do have resources to help you with finding the right HELOC for you.

Many times these types of loans are shorter in term, require much more equity in the home, have higher interest rates, and are harder to qualify for. But, the times are changing and I am starting to see these programs loosen up. Talk with your bank to start, then a credit union or two, and then ask me if I can help. There are positives and negatives associated with these loans but they have a very useful purpose.

Did You Know? In many instances the FHA 203k, HomeStyle, and Cash Out Refinances have tax advantages that Home Equity Loans do not. This is especially true if you utilize the mortgage interest deductions on your Federal tax returns. Consult your tax preparer before making this decision.

There are a few more options available to you when it comes to financing your home improvements and remodeling projects. Consider asking your Contractor to finance the costs, many bigger companies can do this or provide you with a private lending company. But, look at the terms and conditions and compare with some of the options above. Ask you contractor if you can make payments during the work phase, many will take a percentage upfront, during, and at the end.

I am a Mortgage Lender with USA Mortgage and I am a Certified FHA 203k Specialist, I close either one or more FHA 203k and/or HomeStyle mortgages nearly every month. I closed my first renovation mortgage nearly 20 years ago. You need and want a mortgage loan officer like me if your are wanting a home loan for fixing up you house, remodeling, renovating, improving, or rehabbing.

USA Mortgage has offices in the St. Louis MO area, plus Kansas City MO, Columbia MO, Springfield MO, Jefferson City MO, Branson MO, and Cape Girardeau MO. I am located in the St. Louis and St. Charles MO area but help borrowers throughout the State of Missouri, if you have questions or want help please feel free to contact me.

Posted by Bob Rutledge on March 14th, 2017 2:43 PM


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