Cash-Out Refinance vs HELOC
Both let you pull equity from your home, but they work differently. Cash-out refinance replaces your existing first mortgage with a new larger one — you get the difference in cash. A HELOC is a second mortgage that sits behind your existing first, with a revolving credit line. Decision usually comes down to how much you need, your existing first-mortgage rate, and how you plan to use the money.
Cash-Out Refinance
Replace existing mortgage with a new larger one; take the difference in cash.
Best for: Borrowers who need a large lump sum and have a first-mortgage rate below or near current rates.
Pros
- +Single mortgage payment
- +Fixed rate available
- +Can lower rate at the same time
Cons
- −Higher closing costs (full title insurance, full appraisal)
- −Resets amortization schedule
- −Loses your existing rate if it's below market
HELOC (Home Equity Line of Credit)
Revolving credit line secured by home equity; sits behind your existing first.
Best for: Borrowers with a low-rate first mortgage who need flexible access to equity over time.
Pros
- +Keeps existing first-mortgage rate
- +Lower closing costs
- +Revolving — borrow only what you need
- +Interest-only payments during draw period
Cons
- −Variable rate (Prime + margin typical)
- −Draw period ends; principal payments kick in
- −Second-lien position higher risk to lender
| Field | Cash-Out Refinance | HELOC (Home Equity Line of Credit) |
|---|---|---|
| Min FICO | 620+ (680+ best pricing) | 660+ |
| LTV (purchase) | N/A | N/A |
| LTV (cash-out) | Up to 80% | Up to 80–90% combined LTV |
| Income docs | Standard | Standard |
| Term | 30-year fixed | 10-year draw / 20-year repay |
| Time to close | 30–45 days | 14–30 days |
Which one should you choose?
- Cash-Out Refinance: choose cash-out refinance if you need a large fixed lump sum AND your current first-mortgage rate is at or above current market.
- HELOC (Home Equity Line of Credit): choose HELOC if you have a low-rate first mortgage and want flexible access to equity over time without disturbing the first.
- For renovation projects with phased spending, HELOC almost always wins on flexibility.
Frequently asked questions
Can I have both a HELOC and a cash-out refinance?
Not usually at the same time on the same property — combined LTV caps apply. You can do one or the other.
Is HELOC interest tax deductible?
Only if the HELOC funds are used to buy, build, or substantially improve the home that secures the loan (per current tax law). Consult a CPA for your situation.
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FHA vs Conventional
FHA or conventional mortgage? Compare down payment, FICO, MIP/PMI, loan limits, and which fits your scenario as a homebuyer.
Today's mortgage rates
Conventional
5.875%
5.911% APR
FHA
5.250%
5.278% APR
VA
5.250%
5.275% APR
Conv: 80% LTV, 780 FICO. FHA: 96.5% LTV, 680 FICO. VA: 100% LTV, 680 FICO. 30-yr fixed. Your rate may vary.