HELOC vs. Cash-Out Refinance: Which Way to Use Your Equity May Fit You?
Both options let you turn part of your home equity into funds. The big difference is what happens to the mortgage you already have. I'm Phil Hagey, a loan officer with West Capital Lending, and through West Capital Lending's network of more than 160 lenders I can lay both options side by side with your real numbers in an estimate.
Side by side
| HELOC | Cash-out refinance | |
|---|---|---|
| Your current first mortgage | Stays in place | Paid off and replaced |
| How you receive funds | A line of credit you draw from as needed during a draw period | One lump sum at closing |
| Number of loans | Two: your first mortgage plus the HELOC | One new first mortgage |
| Interest structure | Often variable, so costs can change over time | Can be fixed or adjustable, depending on the loan |
| Closing costs | Often lower, but varies by lender | Usually higher, since it's a full new mortgage |
| Loan term | Separate draw and repayment periods | A new full term, which can restart the clock on your mortgage |
| Main trade-off | Keeps your existing terms but adds a second payment that can change | Simplifies to one loan but replaces your existing terms and can add total interest over time |
Features vary by lender and program. Phil gives you an estimate for each option so you can compare actual costs.
A HELOC may fit you if…
- You like your current first mortgage terms and want to keep them
- You need funds over time, such as a renovation done in phases
- You're comfortable with costs that may change
- You want to avoid the closing costs of a full refinance
A cash-out refinance may fit you if…
- You'd like to change your current mortgage terms anyway
- You want a single loan and a single payment
- You need a lump sum all at once
- You prefer predictable terms over a changing line of credit
Not sure? That's normal. I'll compare both with you and tell you plainly if neither is a good fit for you.
Learn more
- HELOCs and home equity loans
- HELOC vs. home equity loan
- Cash-out refinance
- Using a HELOC to consolidate debt
Frequently asked questions
Is a HELOC cheaper than a cash-out refinance?
Not always. A HELOC often has lower closing costs, but its costs can change over time, while a cash-out refinance replaces your whole mortgage. Phil Hagey compares the total cost of both in an estimate so you can see the difference for your situation.
Will a cash-out refinance change my current mortgage?
Yes. A cash-out refinance pays off your current first mortgage and replaces it with a new one, including new terms. A HELOC leaves your first mortgage as it is. Phil Hagey explains what would change before you decide.
Can I use either option to consolidate debt?
Yes, many clients use one of these options to pay off higher-cost debt. Keep in mind that this moves the debt onto your home, so Phil Hagey reviews the long-term cost and the plan with you first.
How do I know which one fits me?
It depends on your current mortgage, how much you need, how you'll use it, and how long you plan to stay. Phil Hagey compares both options across more than 160 lenders and walks you through an estimate line by line.
Not sure which way to go? Call Phil at 949-864-1497 or request an estimate. I'll show you both options side by side, with no pressure.
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HELOCs and cash-out refinances are secured by your home. Refinancing can increase the total finance charges over the life of the loan. Loans subject to credit approval and property eligibility.