HELOC vs Cash-Out Refinance: Which is right for you?
Two ways to turn your home equity into cash, with very different tradeoffs. One keeps your existing mortgage intact. The other replaces it entirely. The right choice depends on your current rate, how much you need, and how you plan to use the funds.
Side-by-side comparison
| Feature | HELOC | Cash-Out Refinance |
|---|---|---|
| How it works | Second lien — revolving credit line on top of your mortgage | Replace your entire mortgage with a new, larger one |
| Impact on mortgage | Existing mortgage stays in place | Existing mortgage is paid off and replaced |
| Interest rate | Variable (some fixed options available) | Fixed or adjustable rate on the new mortgage |
| Closing costs | Typically lower — often $0 to $2,000 | Standard mortgage closing costs (2-5% of loan) |
| Funding speed | Faster — often 2-3 weeks | Longer — typically 30-45 days |
| Flexibility | Draw, repay, and draw again during draw period | One-time lump sum at closing |
| Tax deductibility | Interest may be deductible if used for home improvements * | Mortgage interest deductible on total loan up to IRS limits * |
| Best when rates are... | Higher than your current mortgage rate | Lower than your current mortgage rate |
* Consult a tax advisor regarding the deductibility of interest.
When to choose a HELOC
Happy with your current mortgage rate
If you locked in a low rate in recent years, a HELOC lets you keep it. A cash-out refi would replace it with today's higher rate on your entire balance.
Need ongoing access to funds
Renovating in phases or funding tuition over several semesters? A HELOC lets you draw what you need, when you need it, and only pay interest on what you use.
Borrowing a smaller amount
For amounts under $50,000, the lower closing costs of a HELOC often make it the more cost-effective choice compared to a full refinance.
Want lower upfront costs
HELOC closing costs are typically a fraction of a cash-out refinance. If minimizing out-of-pocket costs matters, a HELOC wins here.
When to choose cash-out refinance
Can lower your mortgage rate
If your current mortgage rate is above today's rates, a cash-out refi lets you lower your rate and access equity in one move.
Need a large lump sum
For major expenses like a full home addition or six-figure debt consolidation, a cash-out refinance can deliver a larger amount at a potentially lower rate than a HELOC.
Want one single payment
A cash-out refi rolls everything into one mortgage payment. No second lien, no second bill. Simpler bookkeeping and budgeting.
Rates are lower than your current mortgage
When market rates drop below your existing rate, a cash-out refinance lets you reduce your rate, lower your payment, and pull cash out — all at once.
Cost comparison example
Current mortgage: $300,000 at 3.5%. You need $50,000 from your equity.
Quick decision guide
Not sure which option fits?
See your personalized rates for both options in minutes. No credit impact to check your rate.
Check your rate