The core difference
A cash-out refinance replaces your existing mortgage with a new, larger one and pays you the difference in cash. A HELOC leaves your first mortgage in place and adds a separate line of credit you draw from as needed.
| HELOC | Cash-out refinance | |
|---|---|---|
| First mortgage | Stays the same | Replaced with a new loan |
| How you get funds | Draw as needed | One lump sum at closing |
| Rate type | Usually variable | Usually fixed |
| Interest charged on | Only what you draw | Entire new loan balance |
| Closing costs | Typically lower | Similar to a purchase mortgage |
| Speed | Often faster; lines ≤ $400,000 generally skip a full appraisal | Usually 30+ days with a full appraisal |
Why your current rate matters most
If your first mortgage rate is well below today's rates, a cash-out refinance means giving up that low rate on your entire balance — not just the new cash. Even if the HELOC's rate is higher than a refinance rate, you're only paying it on the amount you borrow.
Example: You owe $300,000 at 3.25% and want $75,000. A cash-out refi puts all $375,000 at today's rate. A HELOC keeps $300,000 at 3.25% and charges the HELOC rate only on the $75,000 you use. In most cases like this, the HELOC's blended cost is lower.
When a HELOC usually makes more sense
- Your first mortgage rate is lower than current refinance rates.
- You need money over time — like a renovation paid in stages.
- You want a standby line for emergencies and may not use it at all.
- You want lower closing costs and a faster process.
When a cash-out refinance may be better
- Current rates are equal to or lower than your existing rate.
- You want one fixed payment and no rate risk.
- You need a very large amount and will use it all at once.
- You want to remove mortgage insurance or change your loan term at the same time.
Don't forget the home equity loan
A home equity loan also keeps your first mortgage but gives you a fixed-rate lump sum. It's a middle ground if you want rate certainty without refinancing. See HELOC vs home equity loan.