Can You Convert a HELOC to an HEI? How to Pay Off a HELOC With an HEI

In This Article:

• Can You Convert a HELOC to an HEI?
• Why Did My HELOC Payment Go Up When the Draw Period Ended?
• Why Not Just Refinance Your Mortgage to Pay Off the HELOC?
• How Does an HEI Pay Off a HELOC?
• How Do You Pay Off a HELOC With an HEI, Step by Step?
• What Is a Starting Value Discount?
• What If the HEI Doesn’t Cover Your Whole HELOC Balance?
• Does an HEI Cost More Than Keeping the HELOC?
• What Are the Pros and Cons of Replacing a HELOC With an HEI?
• What Other Options Should You Check First?
• Can You Still Refinance Your Mortgage After an HEI?
• Is Using an HEI to Pay Off a HELOC Right for You?
• Frequently Asked Questions

The letter from your bank says the draw period on your HELOC is ending. Starting next month, you can’t borrow from the line anymore, and your payment now has to cover principal as well as interest. For many homeowners, that means a payment that is hundreds of dollars higher, on a rate that can still move.

Refinancing your whole mortgage would fix the HELOC, but it would also trade away a first-mortgage rate you may never see again. That is the trap this guide is about, and an HEI is one way out of it.

Can You Convert a HELOC to an HEI?

No, you can’t convert a HELOC into an HEI, but you can use an HEI to pay off the HELOC completely. The two products come from different companies and work in different ways, so your bank can’t switch one into the other.

Curious if an HEI is right for your situation? See if you qualify with no credit impact.

A HELOC is a line of credit from a lender. You borrow against your home and pay it back with interest. A Home Equity Investment (HEI) works differently: a company gives you cash today, and in return you agree to pay it a share of your home’s value later.

When you use an HEI to replace a HELOC, the HEI company pays off the HELOC at closing and the line is closed for good. The HELOC payment disappears. Your first mortgage, and its rate, stays exactly as it is.

If you want to keep the HELOC open and add an HEI behind it, that is a different setup with stricter rules. See can you get an HEI if you already have a HELOC.

Why Did My HELOC Payment Go Up When the Draw Period Ended?

Your HELOC payment went up because the draw period ended and your lender now requires you to pay back the principal, not just the interest. The draw period is the first stretch of a HELOC, usually 10 years, when you can borrow and often pay interest only. The repayment period comes next, and it spreads the full balance over a set number of years.

Get a preliminary funding estimate with a brief digital check.

Here is one example. Say you owe $85,000 at a 7.5% variable rate.

• During the draw period, the interest-only payment is about $531 a month.
• On a 20-year repayment, the payment rises to about $685.
• On a 15-year repayment, it rises to about $788, nearly 50% more.
• On a 10-year repayment, it rises to about $1,009, close to double.

The rate can also keep moving, because most HELOCs are tied to the prime rate. Plug in your own balance and terms with our HELOC draw period calculator.

Why Not Just Refinance Your Mortgage to Pay Off the HELOC?

A cash-out refinance can pay off your HELOC, but it replaces your entire first mortgage at today’s rates. If you locked in a rate near 3% in 2020 or 2021, the refinance moves every dollar you owe onto a much higher rate. That can raise your main mortgage payment by more than the HELOC jump you were trying to fix. Our HELOC vs. cash-out refinance math shows how fast this adds up.

A second problem catches many homeowners: the bigger HELOC payment can make it harder to qualify for a new loan. Lenders look at your debt-to-income ratio (DTI), which is the share of your monthly income that goes to debt payments. Many home equity lenders cap DTI somewhere around 43% to 50%. When the HELOC payment jumps, your DTI jumps with it, and a fixed-rate home equity loan that could have fixed the problem may now be out of reach.

How Does an HEI Pay Off a HELOC?

An HEI pays off a HELOC by sending a lump sum at closing straight to your HELOC lender, in exchange for a share of your home’s future value. The HEI company then records its own interest on your home, usually right behind your first mortgage, in the spot the HELOC used to hold.

Curious what you’d qualify for with HEI? Pre-qualification takes minutes with no impact on your credit. See your estimate.

Here is what changes and what doesn’t:

• The HELOC is gone. The balance goes to zero and the line is closed, so you can’t draw from it again.
• The HELOC payment is gone. An HEI has no required monthly payment and no stated interest rate.
• Your first mortgage stays the same. Same lender, same rate, same payment.
• You take on a future settlement. When you sell, refinance, buy out the agreement, or reach the end of the term, you pay the HEI company the amount set by your agreement.

You still have duties while the agreement is open. Most HEI contracts require you to live in the home, keep paying your mortgage, property taxes, and insurance, and keep the home in good repair. For what you own and what the company records, see do you still own your home with an HEI.

How Do You Pay Off a HELOC With an HEI, Step by Step?

You pay off a HELOC with an HEI in five steps: check your equity, get a payoff statement, compare offers, clear the appraisal and underwriting, and close with a direct payoff.

Curious if an HEI is right for your situation? See if you qualify with no credit impact.

Step 1: Check your combined loan-to-value (CLTV). CLTV is how much of your home’s value is claimed by everything recorded against it. Add your first mortgage balance and the HEI cash you need, which is your HELOC payoff plus fees, then divide by your home’s value. On a $600,000 home with a $280,000 mortgage and a $90,000 HEI, that is $370,000 divided by $600,000, or about 62%. HEI providers generally cap CLTV somewhere between 65% and 85%, and the cap varies by company. Our guide to HEI equity requirements walks through it, and the home equity calculator does the math.

One thing to ask early: some providers count an open HELOC at its full credit limit, not its balance. Since your line will be closed at funding, ask the provider to confirm it is sizing your offer on the payoff amount.

Step 2: Order an official payoff statement. Your current balance is not your payoff amount. A payoff statement adds the interest that builds up each day until closing, plus any fees to close the line, and it is good through a set date. Ask your HELOC servicer for a written payoff good through your expected closing date. The HEI company needs this exact number.

Step 3: Apply and compare at least two offers. Apply with more than one HEI provider so you can compare written offers side by side. HEI companies put less weight on your monthly income than a lender does, which is why this path can work when a higher HELOC payment has pushed your DTI too high. Credit minimums vary; some providers list minimums as low as 500, while others start near 600. See HEI credit score requirements and our list of HEI companies in Arizona.

Step 4: Clear the appraisal and underwriting. The HEI company orders an independent appraisal and a title search. It will also look at your mortgage and HELOC payment history. The appraisal sets your home’s value, but many agreements then use a lower “starting value,” explained in the next section.

Step 5: Close with a direct payoff. At closing, the title or escrow company wires the payoff straight to your HELOC lender. You never receive that money yourself. The lender applies it, brings the balance to zero, and closes the line. Anything left over after the payoff and fees is sent to you.

Keep making your HELOC payment until the lender confirms the payoff. After closing, check that your final statement shows a $0 balance and that the lender releases its lien on your home.

What Is a Starting Value Discount?

A starting value discount is when the HEI company sets your home’s value lower than the appraisal at the start of the agreement. Some providers call it a risk adjustment. Where it is used, the discount often falls around 10% to 15%, but terms differ by provider and some describe their pricing differently.

The discount matters because your settlement is often based on how much your home grows from that starting value. Say your home appraises at $600,000 and the agreement uses a 10% lower starting value of $540,000. If you later sell for $600,000, the agreement can treat $60,000 as growth, even though your home’s value never changed.

Ask every provider to show both numbers in writing: the appraised value and the starting value used in your agreement.

What If the HEI Doesn’t Cover Your Whole HELOC Balance?

If the HEI offer is smaller than your HELOC payoff, you have to cover the gap at closing or the deal can’t fund. The HEI company needs the HELOC fully paid off so its interest is recorded in the right spot on your home.

Get a preliminary funding estimate with a brief digital check.

Three limits can shrink an offer:

• The provider’s CLTV cap. Your mortgage plus the HEI can’t go over it.
• The maximum investment. Many providers cap the cash at about 20% to 30% of your home’s value, and each sets its own dollar maximum. See which HEI companies have the highest limits.
• Fees. Upfront fees often run a few percent of the cash and come out of the funding, so the amount you need to request is a little more than the payoff.

If you come up short, you can bring cash to closing or pay the HELOC down before you apply. The reverse problem matters too: if your balance is small, fixed minimums and fees can make an HEI a costly way to clear it.

Does an HEI Cost More Than Keeping the HELOC?

Over a full term, an HEI will often cost more than keeping the HELOC, because you pay with a share of your home’s value instead of interest. What you get for that extra cost is room in your monthly budget right now.

See if an HEI is right for your situation and check your estimate today.

Here is one illustrative scenario, not a standard. Take the same $85,000 HELOC at 7.5% on a 15-year repayment. If the rate never changed, you would pay about $57,000 in interest over 15 years, at about $788 a month.

Now say you replace it with $90,000 from an HEI on a $600,000 home, which is 15% of the home’s value. Under one common structure, the company’s share at settlement works out to about twice that percentage, or 30% of your home’s value. If your home’s value stays flat for 10 years, you would owe about $180,000 at settlement, roughly $90,000 more than you received. If your home grows 3% a year, it would be worth about $806,000 after 10 years, and you would owe about $242,000.

Real offers can come in higher or lower than this. Most agreements include a cap that limits what you can owe, and the HELOC’s rate could rise or fall. Run your own numbers with the HELOC vs. HEI calculator, and see HEI settlement costs in Arizona for more scenarios.

The honest tradeoff: in this example, the HEI frees up about $9,500 a year in payments, and you pay for that with a larger share of your home’s value later. The better deal still depends on the written offers, including the funding amount, starting value, fees, settlement formula, and timing of the buyout.

What Are the Pros and Cons of Replacing a HELOC With an HEI?

The main benefit of replacing a HELOC with an HEI is an immediate end to the monthly HELOC payment, and the main drawback is a higher likely cost later.

Get a preliminary funding estimate with a brief digital check.

Pros

• The HELOC payment ends at closing. In the example above, that frees up about $788 a month.
• Your first-mortgage rate is protected. You don’t refinance it or touch it.
• No more rate surprises on that balance. The HEI has no stated interest rate to rise with the prime rate.
• Qualifying puts less weight on income. That can help if the new HELOC payment pushed your DTI too high, or if you’re retired or self-employed.

Cons

• It can cost much more over time, especially if home prices rise.
• You must settle by the end of the term. If you can’t buy out the agreement or refinance, you may have to sell.
• Fees and a starting value discount reduce what you get or raise what you owe.
• Leaving early has its own rules. See what happens if you settle early.
• You lose the line of credit. There is nothing left to draw from in an emergency.
• A future refinance gets harder, as explained below.

What Other Options Should You Check First?

Before you sign an HEI, ask your HELOC lender and at least one other lender whether a cheaper fix is available. An HEI is usually the more expensive choice, so it makes sense to rule out the others first.

Get a preliminary funding estimate with a brief digital check.

• Ask your HELOC lender about relief. Some lenders will extend the repayment term, offer a fixed-rate option, or modify the line, especially if you ask before you miss a payment.
• Refinance the HELOC into a fixed-rate home equity loan. A longer fixed term can lower the payment if you still qualify. See our Arizona home equity loan guide.
• Open a new HELOC. This pays off the old line and starts a new draw period, but it only resets the clock. Compare Arizona HELOC lenders.
• Check options for fair or bad credit. If credit is the issue, see home equity loans with bad credit.

For the full list of moves at the Year 10 mark, see what to do when your Arizona HELOC payment jumps.

Can You Still Refinance Your Mortgage After an HEI?

You can still refinance your mortgage after getting an HEI, but you will usually need to settle the HEI or get the company’s written permission first. For loans that Fannie Mae buys, its Selling Guide does not allow an agreement that requires paying a third party a share of the home’s appreciation. In practice, that means a Fannie Mae eligible conventional refinance generally requires settling the HEI first.

This matters for planning. Many people settle an HEI at the end of the term by refinancing, so the cash-out amount has to cover both the old mortgage and the settlement. See refinancing a mortgage with an HEI and our HEI term-end strategy.

Is Using an HEI to Pay Off a HELOC Right for You?

Using an HEI to pay off a HELOC is the right move for homeowners with plenty of equity who can’t afford the new HELOC payment and can’t get a cheaper fix. It is usually the wrong move if a fixed-rate loan would solve the problem.

See what Nada would offer on your home. No credit impact. Check your Nada estimate.

It may fit if you:

• Have a low-rate first mortgage you want to keep
• Have strong equity but a tight monthly budget, such as after a drop in income or the start of retirement
• Were turned down for a home equity loan because of DTI or credit
• Expect to sell or refinance within the HEI’s term anyway

It may not fit if you:

• Qualify for a fixed-rate home equity loan with a payment you can manage
• Plan to stay in the home well past the HEI term with no clear way to settle
• Want to leave as much home value as possible to your heirs
• Owe only a small HELOC balance that fees would eat into

If the HEI path fits, compare written offers from more than one provider before you sign.

Frequently Asked Questions

EquitySquirrel is an educational resource operated by Scout Media LLC, not a lender or HEI provider. This content does not constitute financial, legal, or investment advice. HEI terms vary by provider and are subject to change; confirm current terms directly. Consult a licensed financial professional before making decisions about your home equity. Aleksandra Kadzielawski, Lic #SA694336000.