If you have built equity in your home, you may be able to tap it with a home equity line of credit (HELOC) or a cash-out refinance. Both let you borrow against your home, but they work very differently. This guide compares a HELOC vs cash-out refinance so you can choose what fits your goals.
The short answer: a HELOC is a separate revolving line of credit that keeps your first mortgage in place, while a cash-out refinance replaces your existing mortgage with a new, larger loan and gives you the difference in cash. If you have a low first mortgage rate, a HELOC may let you access equity without giving it up. If your current rate is higher, a cash-out refinance might make sense. Get a quote to compare your options.
The short answer
A HELOC gives you flexible, reusable credit secured by your home. A cash-out refinance gives you a lump sum by replacing your current mortgage. The right choice depends on your current rate, how much you need, and how you plan to repay.
How a HELOC works
A HELOC is a revolving line of credit, similar to a credit card but secured by your home. You can borrow, repay, and borrow again during the draw period. You typically pay interest only on what you draw.
Key features:
- Keeps your existing first mortgage in place
- Variable interest rate in most cases
- Draw period (often 10 years) followed by a repayment period
- You only pay interest on the amount you use
How a cash-out refinance works
A cash-out refinance replaces your current mortgage with a new, larger loan. You receive the difference between the new loan amount and your current mortgage balance as cash at closing.
Key features:
- Replaces your existing first mortgage
- Usually a fixed interest rate
- One lump sum at closing
- New loan term and payment
Side-by-side comparison
| Feature | HELOC | Cash-Out Refinance |
|---|---|---|
| First mortgage | Stays in place | Replaced |
| Funds | Revolving credit | Lump sum |
| Rate type | Usually variable | Usually fixed |
| When you pay interest | On what you draw | On the full amount |
| Closing costs | Often lower | Similar to a refinance |
When a HELOC may make more sense
A HELOC may be a better fit if:
- You have a low first mortgage rate you do not want to lose
- You need flexible access to funds over time
- You are funding ongoing projects like renovations
When a cash-out refinance may make more sense
A cash-out refinance may be better if:
- Your current rate is higher than today's rates
- You want a fixed rate and predictable payment
- You need a single lump sum
Questions to ask before you borrow against your home
- How much equity do I have?
- Will I keep this home long enough to recoup closing costs?
- Can I afford the new payment if rates rise?
- Am I using the funds for something worth the risk?
When you are ready, get a free quote or set up rate alerts.
This article is for general information only and is not a commitment to lend. Borrowing against your home uses your home as collateral. Eligibility depends on your credit, income, equity, and lender requirements.
