You can roll a home equity loan into your mortgage by refinancing both debts into a single new loan. A new lender issues a mortgage large enough to pay off your existing first mortgage and your home equity loan at once, leaving you with one payment, one rate, and one amortization schedule. Whether it’s worth doing comes down to the new rate, your closing costs, how long you’ll stay in the home, and what you originally used the home equity money for.
How the Consolidation Actually Works
Your first mortgage sits in first position on your home’s title. Your home equity loan sits behind it in second position. When you refinance to combine them, the new lender pays off both debts at closing and records a new mortgage that takes over the first-position spot. The title company distributes funds to each previous lender, and both record lien releases with the county confirming their debts are satisfied.
From that day forward you deal with one lender and one monthly payment. Closing costs run 2% to 5% of the new loan amount and cover origination, title work, appraisal, and recording fees.1Fannie Mae. Closing Costs Calculator You’re paying those costs on the full combined balance, not just the portion that’s new debt.
Cash-Out or Limited Cash-Out: The Classification Matters
How the lender classifies your refinance affects the interest rate you’re quoted and how much equity you need.
If you originally used the home equity loan to help purchase the property, paying it off through a refinance can qualify as a limited cash-out transaction under Fannie Mae guidelines. Limited cash-out refinances generally come with better rates because the lender is restructuring existing purchase debt rather than pulling equity out.2Fannie Mae. Limited Cash-Out Refinance Transactions
If you used the home equity loan for renovations, debt consolidation, or anything else, the refinance is classified as cash-out. That carries a stricter equity requirement: lenders generally cap the loan-to-value ratio at 80% for a single-unit primary residence.3Freddie Mac. Maximum LTV/TLTV/HTLTV Ratio Requirements for Conforming and Super Conforming Mortgages A cash-out refinance also gives you the option to borrow more than the combined balance and take the difference in cash.
Will It Actually Save You Money?
Consolidation only pays off if the new single rate beats the blended rate you’re already paying across both debts. Multiply each loan balance by its rate, add the results, and divide by your total debt. Say you owe $250,000 at 5% on your first mortgage and $50,000 at 8% on your home equity loan. Your blended rate is about 5.5%. A refinance offer below that saves money on interest. Anything above it doesn’t.
Then account for closing costs. Divide the total closing costs by your monthly savings to get the number of months before the refinance pays for itself. Selling or moving before that break-even point means the consolidation cost you more than it saved.
Watch for term extension. If you’ve been paying your original mortgage for ten years and refinance into a fresh 30-year loan, you’ve added a decade of interest, and a lower rate may not make up for it. Refinancing into a shorter term that matches your remaining payoff timeline, or making extra principal payments on the new loan, both address this.
What You’ll Need to Qualify
Equity in the Home
For a cash-out refinance on a primary residence, lenders cap the loan-to-value ratio at 80% for a single-unit home, so you need at least 20% equity after combining both loans.4Fannie Mae. Eligibility Matrix Two-to-four-unit properties typically cap at 70%. Investment properties require more equity still: 75% LTV for a single-unit rental and 70% for multi-unit rentals.3Freddie Mac. Maximum LTV/TLTV/HTLTV Ratio Requirements for Conforming and Super Conforming Mortgages
Credit and Debt-to-Income
Conventional loans require a minimum credit score of 620 for fixed-rate mortgages and 640 for adjustable-rate mortgages.5Fannie Mae. General Requirements for Credit Scores Scores above 740 unlock the best pricing. FHA-backed refinances accept credit scores as low as 580 and allow debt-to-income ratios up to 50% with compensating factors, though they come with mortgage insurance premiums that generally last the life of the loan for FHA mortgages originated since June 2013.6U.S. Department of Housing and Urban Development. Updates to Servicing, Loss Mitigation, and Claims
Conventional DTI is typically capped at 43%. If the combined loan is meaningfully larger than your original first mortgage alone, your DTI can shift enough to affect approval.
Conforming Loan Limits
For 2026, the conforming loan limit for a single-unit property in most of the country is $832,750, rising to $1,249,125 in designated high-cost areas.7Federal Housing Finance Agency. FHFA Announces Conforming Loan Limit Values for 2026 If combining the two loans pushes you above the limit, the new mortgage becomes a jumbo loan, with stricter underwriting and often higher rates.
The Tax Trap Most People Miss
Rolling your home equity loan into a new mortgage does not automatically make all of the interest tax-deductible. The IRS looks at what the borrowed money was originally used for, not how the debt is packaged today.
Mortgage interest is deductible only when the proceeds were used to buy, build, or substantially improve the home securing the debt.8Internal Revenue Service. Home Mortgage Interest Deduction (Publication 936) If your home equity loan paid for qualifying improvements, that interest stays deductible after consolidation. If it paid off credit cards, funded a vacation, or covered personal expenses, that portion isn’t deductible even once it’s folded into your primary mortgage.
When a refinanced loan contains both qualifying and non-qualifying debt, the IRS treats it as a mixed-use mortgage. Payments are applied first to the non-qualifying portion, and you have to track the two categories separately to claim the correct deduction.8Internal Revenue Service. Home Mortgage Interest Deduction (Publication 936)
There’s also a cap on total deductible mortgage debt. For loans taken out after December 15, 2017, you can deduct interest on up to $750,000 of qualifying mortgage debt, or $375,000 if married filing separately. Mortgages that originated on or before that date fall under the older $1 million limit, or $500,000 if married filing separately.9Internal Revenue Service. Interest Expense Interest on any balance above the applicable threshold isn’t deductible.
If Your Second Loan Is a HELOC
If the debt you’re rolling in is a home equity line of credit rather than a fixed home equity loan, check for an early termination fee. Many lenders charge a penalty for closing a HELOC within the first two or three years, commonly a few hundred dollars up to 2% of the credit limit. Fold that number into your break-even calculation before you commit.
Consolidating also ends any unused draw capacity. Once the HELOC is paid off and closed, getting revolving access to your equity back means applying for a new line of credit.
When a Subordination Agreement Is the Better Move
Consolidation isn’t the only option. If your real goal is a better rate on the first mortgage and your home equity loan terms are already competitive, you can ask the home equity lender to sign a subordination agreement. That keeps their lien in second position behind your new first mortgage, so the second loan stays in place while you refinance only the first.
You avoid absorbing the second balance into a larger mortgage, and if it’s a HELOC, you sidestep the early termination fee. The catch is that the second lender has to agree. They’ll review the new first mortgage terms and may decline if your combined debt is too high relative to the home’s value. Each lender runs its own subordination process and often charges a review fee.
This route makes the most sense when the first mortgage rate is what’s hurting you, when your home equity balance is small enough that a full consolidation’s closing costs can’t be justified, or when you want to preserve access to a HELOC draw period you may still need.