Cash-Out Refinance vs. HELOC: What’s the Difference?
When you’ve built equity in your home, you have options to access that value for things like renovations, debt consolidation, or major expenses. Two of the most popular ways to do this are through a cash-out refinance or a home equity line of credit (HELOC). While both let you tap into your home’s value, they work very differently—and one might be a better fit depending on your financial goals.
What Is a Cash-Out Refinance?
A cash-out refinance replaces your existing mortgage with a new, larger loan. You receive the difference between your old loan balance and the new one in cash.
For example, if your home is worth $400,000 and you owe $250,000, you might refinance for $320,000—taking $70,000 out in cash (minus closing costs).
It’s essentially a way to borrow against your equity while also possibly securing a better rate or term on your mortgage.
Benefits of a Cash-Out Refinance:
One fixed monthly payment (new mortgage)
Potentially lower interest rate than credit cards or personal loans
Option to lock in a fixed rate for long-term stability
May qualify for tax-deductible interest (consult your tax advisor)
Great for major expenses like remodeling or debt consolidation
What Is a HELOC?
A home equity line of credit (HELOC) works more like a credit card secured by your home’s equity. Instead of replacing your mortgage, it gives you a revolving line of credit that you can draw from as needed during what’s called the “draw period” (typically 5–10 years).
You only pay interest on the amount you borrow, and payments are usually variable—meaning they can change if interest rates rise or fall.
Benefits of a HELOC:
Flexibility to borrow what you need, when you need it
Interest-only payments during the draw period (in many cases)
Great for ongoing or unpredictable expenses
Often faster to set up than a refinance
Key Differences
Feature | Cash-Out Refinance | HELOC |
|---|---|---|
Loan Type | New mortgage replaces your current one | Revolving line of credit |
Interest Rate | Usually fixed | Usually variable |
Repayment | Single monthly payment for mortgage | Flexible draws and payments |
Best For | One-time, large expenses | Ongoing or flexible borrowing needs |
Tax Deductibility | Possible (consult advisor) | Possible (consult advisor) |
Which Option Is Right for You?
Choose a cash-out refinance if you want to lock in a stable rate, consolidate debt, or access a large sum of cash all at once.
Choose a HELOC if you prefer flexibility, expect multiple smaller expenses, or want to borrow gradually over time.
Both can be smart financial tools—it all depends on how you plan to use your home’s equity and your comfort level with variable versus fixed payments.