Cash-Out Refinance vs HELOC
Both let you turn home equity into cash. A cash-out refinance replaces your entire mortgage with a new, larger one (you pocket the difference). A HELOC (home equity line of credit) is a separate revolving credit line secured by your home. Right choice depends on how much you need, current rates vs your existing rate, and how predictable your cash needs are.
| Factor | Cash-Out Refinance | HELOC |
|---|---|---|
| Affects existing mortgage | Yes — replaces it | No — second lien on top |
| Rate vs primary mortgage | Same as current 30-yr rates | Variable, typically prime + 1–2% |
| Closing costs | $3K–$8K (full refi closing) | $0–$500 (often waived) |
| Cash structure | Lump sum at closing | Revolving credit you draw as needed |
| Repayment | Fixed monthly over 15–30 years | Interest-only during draw period (10 yrs), then amortizes |
| Best for | One big project, low existing rate not worth keeping | Ongoing/unknown expenses, want to keep low rate |
Choose Cash-Out Refinance when…
Current rates are below your existing mortgage rate (refinancing makes sense regardless), you need a large lump sum (home addition, business funding), and you want a fixed payment for budgeting predictability.
Choose HELOC when…
You have a low existing mortgage rate (3–4%) and don't want to refinance into today's higher rates, you need flexible access to cash over years (renovations in phases, rolling tuition payments), or you only want to borrow when you actually need to.
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Open the calculator →Frequently asked questions
Why would I cash-out refi if rates are higher than my current rate?
Usually you wouldn't. Math example: refinancing a $300K mortgage from 3.5% to 7% to pull $50K cash costs you roughly $750/month more for 30 years. That extra interest dwarfs $50K cash. HELOC is almost always better in this rate environment.
Is HELOC interest tax-deductible?
Only if used for "substantial improvement" to the home securing the loan (kitchen remodel yes, vacation no). Subject to the same $750K mortgage debt cap as your primary mortgage.
What's a home equity loan vs HELOC?
A home equity loan is a fixed-rate lump-sum second mortgage (closer to refinance in structure but doesn't replace your first). HELOC is the revolving variable-rate version. Same purpose, different repayment shape.