Which Is Better: A Cash-Out Refinance Or A HELOC?

If you’re like most homeowners, you’ve seen your property value increase significantly in recent years. That equity? It's not just a number on paper; it’s a real financial asset. But tapping into it raises a crucial question: Should you go with a cash-out refinance or a HELOC (Home Equity Line of Credit)?

Both options let you convert home equity into usable funds. But they work differently, and choosing the wrong one could cost you thousands over time.

Don’t worry, we’ve got you.

In this guide, you’ll learn the difference between cash-out refis and HELOCs, when to choose one over the other, and how to avoid common pitfalls. Let's dive in.

Key Takeaways:

• Cash-out refinance replaces your mortgage, while a HELOC adds a second loan.
• Refinances may offer lower interest rates but come with higher closing costs.
• HELOCs provide flexible access to equity, great for ongoing projects.
• Understand how each impacts your long-term finances, credit, and taxes.
• Always compare rates, fees, and terms before choosing a product.

A cash-out refinance replaces your current mortgage with a new one, ideally at a better rate and for a larger amount. The difference between your old loan and the new one is paid to you in cash.

Pro Tip: Think of it as resetting your home loan with a withdrawal built in.

• Potentially lower fixed interest rates compared to HELOCs
• Consolidates debt into one payment
• Could improve cash flow if the rate drops

• Higher closing costs (2–5% of the loan amount)
• Restarting a new loan term
• Longer approval process

A Home Equity Line of Credit (HELOC) is a revolving credit line secured by your home. You borrow as needed, up to a limit, and repay only what you use.

• Flexible, on-demand access to funds
• Only pay interest on what you borrow
• Ideal for ongoing expenses like renovations

• Variable interest rates = unpredictable payments
• It can feel like a credit card secured by your home
• Typically, a second mortgage

Consider this route if:

• You want to lock in a lower mortgage rate
• You plan to stay in your home long-term
• You have significant, one-time expenses (like college or debt consolidation)

Heads up: If current interest rates are higher than your existing mortgage, this option may not be ideal.

A HELOC might be a better fit if:

• You want ongoing access to funds
• You’re comfortable with rate fluctuations
• You prefer minimal upfront costs

Choosing between a HELOC and a cash-out refi isn’t just about today’s need; it’s about how that decision impacts your future. Think about monthly payment changes, how they affect your credit profile, and how quickly you plan to repay.

We recommend exploring resources like:

• Be My Neighbor Mortgage – A licensed mortgage broker (NMLS #1743790) that helps you shop for the right product.
• reAlpha – A commission-free homebuying platform with educational tools for homeowners seeking smarter equity decisions.

When comparing a cash-out refinance vs. HELOC, the best choice depends on your financial strategy, risk tolerance, and timing.

If you want ongoing access to equity with flexible terms, a HELOC may be the move. But if you’re seeking a lump sum at a potentially lower interest rate, and don’t mind restarting your mortgage term, a cash-out refinance could be better.

Explore your options with Be My Neighbor, a licensed mortgage brokerage that helps all kinds of borrowers shop smart. And if you're buying a home, check out reAlpha, they help you buy homes commission-free, putting more power in your pocket.

A cash-out refinance replaces your existing mortgage with a new one, while a HELOC is a second loan that functions like a credit card tied to your home equity.

Both may cause a small, temporary dip due to the credit inquiry and the new account. But responsible use and on-time payments can strengthen your score.

Typically, cash-out refinances have lower fixed rates. HELOCs usually have variable rates, which can increase over time.

Yes. Many use them for renovations, tuition, or debt consolidation. Just be mindful, it’s still secured by your home.

Interest on HELOCs or refinanced loans may be tax-deductible only if used for home improvements. Always consult a tax advisor.

• Mortgage product availability, terms, and approval are subject to underwriting and credit approval.
• Interest rates and terms are subject to change based on market conditions.
• Not an offer to extend credit. For informational purposes only.
• Be My Neighbor Mortgage is licensed under NMLS #1743790.
• ReAlpha is a real estate technology platform and not a licensed mortgage broker or lender.
• This content does not constitute legal, tax, or financial advice. Always consult qualified professionals.