Both let you turn home equity into cash, but structurally they’re opposites: a HELOC adds a second, flexible loan on top of your mortgage; a cash-out refinance replaces your whole mortgage with a bigger one.
Side by side
| HELOC | Cash-Out Refinance | |
|---|---|---|
| Structure | Second loan / line of credit | Replaces entire first mortgage |
| Rate on existing mortgage | Untouched | Reset — could rise or fall |
| Rate type | Usually variable | Usually fixed |
| Closing costs | Lower | Higher — full mortgage closing |
| Best when | Rates have risen since your mortgage | New rate ≤ your current rate |
Strengths of each
HELOC — strengths
- Keeps a low existing mortgage rate intact
- Draw only what you need, when needed
- Lower closing costs
Cash-Out Refinance — strengths
- One single fixed payment
- Can lower your rate on the whole balance
- No variable-rate risk
Worked example
If your existing mortgage is at 3.5% and current rates are 6.5%, a HELOC protects that 3.5% on the first loan; refinancing would reset the entire balance to 6.5%.
FAQ
Which has lower total interest?
It depends entirely on the rate spread between your existing mortgage and current rates — model both with the calculators.
Can I have both?
Not usually on the same equity — a HELOC and cash-out refinance both draw from the same pool of home equity.