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Short answer
A HELOC is a second loan, a line of credit against your home equity that you draw on as needed, usually at a variable rate, while you keep your current first mortgage as it is. A cash-out refinance replaces your current mortgage with a new, larger one and pays you the difference in cash, so your whole balance moves to a new rate and term. If you like your current mortgage rate or need money over time, a HELOC is often the one to compare first; if you want one fixed payment or need to change your first mortgage anyway, compare a cash-out refinance.
| Feature | HELOC | Cash-out refinance |
|---|---|---|
| Your current mortgage | Stays in place; the HELOC is a second lien | Paid off and replaced by a new, larger first mortgage |
| How you get the money | Draw as needed during the draw period | One lump sum at closing |
| Interest rate | Usually variable | Fixed or variable |
| Rate applies to | Only what you draw | Your whole new loan balance |
| Payments | Can change; often rise when repayment begins | One mortgage payment |
| Closing costs | Varies by lender | Generally higher (CFPB) |
| Conventional limit | Set by the lender | Fannie Mae: up to 80% LTV on a one-unit primary home |
| Right to cancel | Generally three business days after signing | Generally three business days after signing |
The CFPB describes a home equity line of credit as an open-end line of credit that lets you borrow repeatedly against your home equity, which is your home's value minus what you owe on your mortgage. You can generally borrow up to your credit limit during the draw period, which could last 10 years, for example. HELOCs usually have a variable interest rate, so your payments may change.
After the draw period ends, you enter the repayment period. The CFPB notes that monthly payments are often significantly higher once you enter repayment. If the value of your home drops significantly, your lender might not let you take out more under the line. And because your home secures the HELOC, if you fall behind or cannot repay on schedule, you could lose your home.
In a cash-out refinance, you replace your existing mortgage with a bigger mortgage and take the difference in cash. The CFPB's HELOC booklet notes that closing costs are generally higher, it may take longer to pay off your mortgage, and the interest rate may be higher than your current mortgage. The rate can be fixed or variable.
Fannie Mae's rules for a conventional cash-out refinance include:
The CFPB explains that you have a right to cancel, called the right of rescission, for most non-purchase money mortgages, such as refinances and home equity loans, generally within three business days after you sign.
A HELOC is often worth a close look if:
A cash-out refinance is often worth a close look if:
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A HELOC is a second loan that you draw on as needed while keeping your current mortgage. A cash-out refinance replaces your mortgage with a new, larger one and pays you the difference in cash.
The CFPB's HELOC booklet notes that closing costs on a cash-out refinance are generally higher. Costs vary by lender, so compare offers for both.
The CFPB says HELOCs usually have a variable interest rate, so your payments may change. A cash-out refinance can have a fixed or variable rate.
Under Fannie Mae's Eligibility Matrix, the maximum loan-to-value for a conventional cash-out refinance on a one-unit primary residence is 80%. Other programs and property types have different limits.
Yes. The CFPB warns that if you fall behind or cannot repay the loan on schedule, you could lose your home. The same is true for any mortgage.
The CFPB explains that most non-purchase money mortgages, such as refinances and home equity loans, come with a right of rescission, which generally gives you three business days after signing to cancel.
This page is general education, not a loan offer, commitment, or approval. Program rules and figures change; the figures here were checked against the sources below in October 2026. Your options depend on your credit, income, property, and each lender's guidelines. All loans are subject to approval.
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