Both turn equity into cash. The difference is what happens to the mortgage you already have.
The key difference
A cash-out refinance replaces your whole mortgage with a bigger one at today’s rate. A HELOC (or fixed home equity loan) sits behind your current mortgage and only prices the new money.
A simple example
Say you owe $400,000 at 3.25% and want $100,000. A cash-out refinance moves the full $500,000 to today’s rate. A HELOC leaves the $400,000 at 3.25% and only the $100,000 is at today’s pricing. When your current rate is well below today’s, that usually makes the second lien cheaper, even if its rate is higher than a refinance rate.
When a cash-out refinance wins
- Today’s rate is at or below your current rate.
- You want one loan and one fixed payment.
- You need more cash than second-lien programs allow.
When a HELOC or home equity loan wins
- Your first-mortgage rate is lower than today’s rates.
- You need money over time (renovations) rather than all at once.
- You want lower closing costs and a faster close.
The honest math
Compare the total interest you’d pay over the time you expect to keep each option, plus closing costs. I run that comparison for every equity request, including what it costs to do nothing.
Examples are for illustration only. Not a rate quote, a credit decision or a commitment to lend. Programs, terms and timelines vary by lender, property and borrower and are subject to approval. Larz Martin NMLS #2026245, Lumin Lending, Inc. NMLS #2716106. Equal Housing Opportunity.
