HELOC vs. Cash-Out Refinance
HELOC = flexible line of credit at variable rate. Cash-out refi = lump sum at a fixed rate, replacing your first mortgage. HELOC wins for unpredictable expenses; cash-out wins when current rates are at or below your first-mortgage rate.
| HELOC | Cash-Out Refinance | |
|---|---|---|
| Rate type | Variable (often Prime + 1-2%) | Fixed (matches mortgage) |
| How you receive funds | Line of credit you draw from over years | Lump sum at closing |
| Closing costs | $0-$500 typically | 2-5% of loan amount |
| Affects first mortgage | No (second lien) | Yes (replaces it) |
| Best for | Renovations, recurring expenses, safety net | Large one-time use (debt consolidation, big project) |
| Tax-deductibility | If used for home improvements | If used for home improvements |
| Risk if rates rise | Payment goes up | No change (fixed) |
| Time to close | 2-4 weeks | 30-45 days |
Choose HELOC if
- You want financial flexibility, not a lump sum.
- Your first mortgage has a low rate you do not want to lose.
- You expect to draw funds over multiple years.
- You have strong income and can absorb rate increases.
Choose Cash-Out Refinance if
- You need a large lump sum NOW (debt consolidation, major renovation).
- Current mortgage rates are at or below your existing rate.
- You want a single fixed monthly payment.
- You have 20%+ equity after the cash-out.
Run the numbers yourself
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