HELOC vs Cash-Out Refinance
Compare flexible credit lines against lump-sum refis to see which path matches your plans.
HELOC
A revolving credit line secured by your home's equity.
Best For:
- ✓Ongoing home renovations
- ✓Emergency fund access
- ✓Preserving low first mortgage rate
Key Benefits:
- • Pay interest only on what you use
- • Re-borrow as you repay
- • Keep your existing mortgage
Typical Rate: Prime + 0.5-2%
Closing Costs: $0-$2,000
Cash-Out Refinance
Replace your mortgage with a larger loan and get cash back.
Best For:
- ✓Large, one-time expenses
- ✓Debt consolidation
- ✓Lowering your current rate
Key Benefits:
- • Fixed rate and payment
- • Large lump sum upfront
- • One loan, one payment
Typical Rate: Market mortgage rates
Closing Costs: 2-5% of loan
Side-by-side comparison
See how each option stacks up across key factors
| Feature | HELOC | Cash-Out Refinance |
|---|---|---|
How you receive funds When and how you access the money | Credit line to use as needed | Lump sum at closing |
Interest rate type How your rate is determined | Variable (Prime + margin) | Fixed for loan term |
Payment structure Monthly payment requirements | Interest-only on amount used | Principal + interest on full amount |
Best for Ideal use cases | Ongoing or uncertain expenses | One-time large expenses |
Closing costs Upfront fees | $0-2% of credit line | 2-5% of loan amount |
Affects first mortgage | ||
Can re-borrow funds | ||
Tax deductible interest If used for home improvements |
HELOC
Cash-Out Refinance
Which should you choose?
Choose a HELOC if...
- →You have a low rate on your current mortgage (under 4-5%)
- →You need funds for ongoing or future expenses
- →You want to minimize closing costs
- →You value payment flexibility
Choose Cash-Out Refinance if...
- →Current rates are lower than your existing mortgage
- →You need a large sum immediately
- →You prefer predictable fixed payments
- →You want to simplify to one loan
Let's find your best option
Get personalized recommendations based on your unique situation.
HELOC vs Cash-Out FAQs
Common questions about choosing between options
A HELOC is typically better when: you have a great rate on your first mortgage you don't want to lose, you need flexibility to draw funds over time, you're unsure of the exact amount needed, or you want the ability to re-borrow. It's ideal for ongoing projects or as an emergency fund.
Cash-out refinancing is often better when: current rates are lower than your existing mortgage, you need a large lump sum immediately, you prefer fixed payments, or you want to consolidate everything into one loan. It's ideal for major one-time expenses.
Not simultaneously on the same property. Cash-out refinancing pays off all existing liens, including HELOCs. However, you could do a cash-out refinance and later get a new HELOC, or get a HELOC now and refinance later if rates improve.
It depends on your situation. HELOCs have lower closing costs but higher interest rates. Cash-out refinancing has higher closing costs but potentially lower rates. If you have a low rate on your current mortgage, a HELOC preserves that rate and may be cheaper overall.
Consider: 1) Your current mortgage rate vs. today's rates, 2) How much money you need and when, 3) Whether you prefer fixed or variable payments, 4) How long you plan to use the funds. Our mortgage brokers can help you run the numbers for your specific situation.
Important Disclosures
Comparison for educational purposes. Actual terms vary by lender and borrower qualifications.
Both options use your home as collateral. Failure to repay could result in foreclosure.
Tax deductibility of interest depends on use of funds. Consult a tax advisor.