A cash-out refinance replaces your mortgage with a larger one and gives you the difference in cash, at a new rate on the whole balance. A home equity line of credit (HELOC) is a second loan you draw on as needed, usually at a variable rate, leaving your first mortgage untouched. If your current rate is low, a HELOC usually costs less; if today’s rates are similar to or below yours, a cash-out refinance can make sense.
Side by side
| Cash-out refinance | HELOC | |
|---|---|---|
| Your first mortgage | Replaced at a new rate | Unchanged |
| Rate | Fixed or adjustable, on the whole loan | Usually variable, on what you draw |
| How you get money | One lump sum at closing | Draw as needed during a draw period, often 10 years |
| Closing costs | Often 2% to 5% of the new loan | Often low or none |
| Typical maximum | About 80% of value (conventional and FHA); up to 90% for VA | Often 80% to 90% of value combined with your mortgage |
Run both
Try it: Cash-out refinance calculatorSee how much cash you could take out, your new payment and the true cost compared with keeping your current loan.Then compare with the HELOC calculator, which shows your available line, payments during the draw period and after it ends.
The key question: your current rate
If you have a 3% mortgage and today’s rates are 6.5%, a cash-out refinance raises the rate on your entire balance, not just the new money. On a $300,000 balance, that could cost far more each month than the interest on a $50,000 HELOC, even at a higher HELOC rate. A HELOC, or a fixed-rate home equity loan, usually wins in that situation.
Good uses of home equity
- Repairs and improvements that protect or add value.
- Paying off much higher-rate debt, if you won’t run the balances back up.
- A down payment on another home; see buying before you sell.
Risks
- Your home secures the debt; missing payments can lead to foreclosure.
- HELOC rates can rise, and payments jump when the draw period ends and principal repayment begins.
- Falling home values can freeze or reduce a HELOC line.
Know your equity
Estimate your home’s value with the home value estimator and subtract what you owe. Lenders usually leave at least 10% to 20% equity untouched. If you’re mainly after a lower payment, see when to refinance instead.
Common questions
Is a HELOC or cash-out refinance better?
If your current rate is well below today’s rates, a HELOC usually costs less because your first mortgage stays untouched.
How much equity can I take out?
Cash-out refinances usually go up to about 80% of value (90% for VA); HELOCs often allow 80% to 90% combined with your mortgage.
Are HELOC rates fixed?
Usually variable, though some lenders let you fix part of the balance. Home equity loans have fixed rates.
Updated October 2026. Educational content. OfferBacked is not currently a lender and doesn’t issue pre-approvals or loans.