On this page 6 sections
In short
- HELOC: keeps your first mortgage, prices only the new money, usually closes faster.
- Cash-out refinance: replaces your first mortgage, one payment, can raise more cash.
- If your current rate is well below today's rates, a HELOC usually costs less.
Side by side
| HELOC | Cash-out refinance | |
|---|---|---|
| Your first mortgage | Stays as is | Paid off and replaced |
| Rate applies to | Only the new money | Your whole balance |
| Closing costs | Vary by program; tied to the second-lien loan | Typically 2% to 5% of the full new loan |
| Time to close | Some eligible files fund in about a week; banks take longer | Often 30 to 45 days |
| Payments | Two: first mortgage + HELOC | One |
| Loan term | Separate term you choose | Usually restarts at 30 years |
| Common max CLTV | 80% to 90% | 80% on most conventional loans |
Want a fixed payment without touching your first mortgage? Compare a HELOC and a home equity loan.
A worked example
Say your home is worth $800,000. You owe $400,000 at 3.0% with 25 years left, and you need $100,000. The rates below are hypothetical, not a quote. To compare fairly, both paths are measured over the same 10 years.
| Keep first + HELOC | Cash-out refinance | |
|---|---|---|
| Loans | $400,000 at 3.0% (25 years left) + $100,000 at 8.75% for 15 years | $500,000 at 6.5% for 30 years |
| Monthly payment | $1,897 + $999 = $2,896 | $3,160 |
| Paid over 10 years | $347,555 | $379,241 |
| Interest over 10 years | $170,658 | $303,121 |
| Still owed after 10 years | $323,103 | $423,881 |
After 10 years, keeping the first mortgage has cost $31,686 less in payments and leaves you owing $100,778 less. The HELOC carries the higher rate, but only on $100,000. The refinance moves $400,000 from 3.0% to 6.5%.
Compare real offers the same way: use the same holding period, include closing costs, and look at what you'd still owe when you expect to sell or refinance.
When a cash-out refinance wins
- Your current rate is already close to today's rates.
- You need more cash than a HELOC limit allows.
- Your first mortgage is an adjustable rate that's about to reset.
- You want to drop FHA mortgage insurance or remove a co-borrower from the loan.
- You strongly prefer a single payment.
When a HELOC wins
- Your first mortgage rate is well below current rates.
- You need a modest amount compared with your balance.
- You need the money quickly. See how long a HELOC takes.
- You want to keep closing costs down.
Run your own numbers in the HELOC calculator, then compare the payment with what a refinance quote shows.
Frequently asked questions
Is a HELOC better than a cash-out refinance?
It depends on your current rate. If your first mortgage rate is well below today's rates, a HELOC usually costs less because it only prices the new money. If your rate is already near market, or you need more cash than a HELOC allows, a cash-out refinance can make more sense.
Does a HELOC affect my first mortgage?
No. A HELOC is a separate loan in second position. Your first mortgage rate, payment and payoff date don't change.
Which is faster, a HELOC or a cash-out refinance?
Usually the HELOC. Some online HELOC programs fund eligible files in about a week, while cash-out refinances commonly take 30 to 45 days.
Which has lower closing costs?
Often the HELOC in total dollars, because a cash-out refinance's costs, typically 2% to 5%, apply to the full new loan. HELOC costs vary by program, so compare the rate and total fees on each offer. A HELOC's disclosed APR doesn't include fees, so APRs alone won't line up.
Can I refinance later if rates drop?
Yes. If rates fall, you can refinance your first mortgage and roll in the HELOC balance, or refinance the HELOC on its own.
Questions about your own situation? Contact a licensed loan officer. It's optional, and your information is not sold to lead marketplaces.