The 80% LTV refinance cap
Federal mortgage rules cap conventional refinances at 80% of appraised home value. This was tightened in 2016 (used to be 85%) and applies to all federally-regulated lenders.
The cap is generous in most cases. Even after several years of payments and modest appreciation, most homeowners have plenty of refinance room. The cap mainly affects newer homeowners with little equity built up.
If you need to access more than 80% of your home's value, options narrow: HELOC stacked on top of a regular mortgage, private second mortgage, or selling and buying smaller. We can advise on each.
Refinance vs HELOC vs second mortgage
A refinance replaces your existing mortgage with a new one. Same lender or different. Whole loan re-amortized.
A HELOC (home equity line of credit) sits alongside your existing mortgage as a separate revolving credit line, secured against your home equity. Interest-only payment option, you draw funds as needed.
A second mortgage is a separate fixed loan against the equity, usually used when refinance isn't possible (recent credit issues, untraditional income, etc.). Higher rates, shorter terms.
Each has its place. A refinance gets you the lowest rate but means breaking the existing mortgage. A HELOC is more flexible but typically variable rate. We'll model all three for your situation.
When refinancing makes financial sense
Strongest case: consolidating high-interest debt. Replacing 21% credit card debt with a 5% mortgage saves substantial interest, even after refinance costs.
Strong case: renovations that add value. Refinancing for a kitchen reno or basement finish at mortgage rates beats putting it on a HELOC or credit card.
Weaker case: discretionary spending (vacations, vehicles). The math rarely works once you account for the long amortization. Be honest with yourself about what you'd use the money for.