Which One is Right For You: Cash Out Refinance or Home Equity Line of Credit?

When homeowners need cash, they often look to their home’s equity. Among U.S. homeowners, home equity typically accounts for about 45% of their net worth and is often the best opportunity for them to pay for their major financial needs and wants.

Two of the most popular ways for homeowners to access that equity are cash-out refinance and home equity line of credit (HELOC).

While a cash-out refi and a HELOC allow you to unlock the value of your home for financial needs, they work differently and suit different scenarios.

In this article, we’ll explain the key differences between a cash-out refi vs. HELOC and the pros and cons of each, and help you determine which option might be the best fit for your financial goals.

What is a cash-out refinance?

A cash-out refinance involves replacing your existing mortgage with a new, larger loan and receiving the difference in cash.

This option is ideal for homeowners who want to consolidate their mortgage and equity access into a single payment.

For example, if your current mortgage balance is $150,000 and your home is worth $300,000, you could refinance it for $200,000. You would use $150,000 to repay your existing loan and take the remaining $50,000 as cash.

Pros of a cash-out refinance

• Lower interest rates: If the current mortgage rates are lower than when you purchased your home, a cash-out refinance could secure a better rate for your new loan.
• Single monthly payment: A refinance replaces your existing mortgage, so you’ll only have one loan payment to manage.
• Fixed rates: Many cash-out refinances come with fixed interest rates, providing predictable monthly payments.

Cons of a cash-out refinance

• Closing costs: Refinancing involves closing costs similar to those of your original mortgage, which can add up to thousands of dollars.
• Extended loan term: You may extend your loan term by refinancing, potentially paying more interest over time.
• Loss of favorable terms: If your current mortgage has particularly low rates or terms, refinancing may replace them with less favorable ones.

What is a home equity line of credit (HELOC)?

A HELOC is a revolving line of credit that allows you to borrow against the equity in your home as needed, up to a specified limit.

Unlike a refinance, a HELOC does not replace your existing mortgage—it functions as a separate loan.

HELOCs typically have a draw period during which you can borrow funds (e.g., the first 5–10 years), followed by a repayment period where you pay back the balance with interest.

Pros of a HELOC

• Flexibility: Borrow only what you need when needed rather than a lump sum.
• Lower upfront costs: HELOCs generally have lower closing costs than refinances.
• Keep your existing mortgage: A HELOC doesn’t require replacing your primary loan, so you retain your current interest rate and terms.

Cons of a HELOC

• Variable interest rates: Most HELOCs have adjustable rates, which can increase over time.
• Separate payments: Because a HELOC is a second loan, you’ll have an additional monthly payment to manage.
• Draw period limitations: Once the draw period ends, you must repay the balance, often at a higher monthly cost.

Cash out refi vs. HELOC: key differences

While both options allow you to access your home equity, their differences make them suitable for distinct financial situations.

When to choose a cash-out refinance

A cash-out refinance may be the better choice if:

1. You want to lower your mortgage rate: Here, too, refinancing at a lower rate might save you money on interest.
2. You need a large lump sum: Refinancing provides a one-time payout for substantial expenses like paying off high-interest debt or funding a major renovation.
3. You prefer a single monthly payment: Refinancing consolidates your mortgage and equity access into one loan.

When to choose a HELOC

A HELOC may be a better fit if:

1. Ongoing access to funds: A HELOC offers flexibility to borrow as needed for expenses like home improvements over time or covering unpredictable costs.
2. You want to keep your existing mortgage: If your current loan has favorable terms, a HELOC allows you to retain it while accessing additional funds.
3. You’re looking for lower upfront costs: HELOCs typically have minimal closing costs, making them a cost-effective option for smaller borrowing needs.

Why HomeEQ recommends a HELOC

For many homeowners, a HELOC offers flexibility, affordability, and convenience—especially when paired with HomeEQ’s innovative lending platform.

Here’s how HomeEQ’s HELOC stands out.

1. Fully digital process

HomeEQ’s online application eliminates the need for loan officers, in-person appraisals, or lengthy paperwork. Borrowers can complete the process in minutes from the comfort of their home.

2. Soft credit checks only

Unlike traditional lenders, HomeEQ performs only soft credit checks during the application process, ensuring your credit score remains unaffected while exploring your options.

3. Fast access to funds

Once approved, borrowers can receive their funds in a few days—perfect for time-sensitive financial needs.

4. Flexible terms and amounts

Borrow up to $350,000 with term options ranging from 5 to 30 years, giving you plenty of leeway to tailor the loan to your unique needs.

Conclusion: Cash-out refinance or home equity line of credit?

Choosing between cash-out refinancing and a home equity line of credit will depend heavily on your financial goals and personal circumstances.

If you’re seeking a large lump sum and want to consolidate your mortgage, a cash-out refinance may be the way.

However, a HELOC is likely the better option if flexibility, lower upfront costs, and preserving your current mortgage terms are priorities.

For homeowners looking for a fast, digital, and borrower-friendly HELOC, HomeEQ offers a standout solution.

Their streamlined process, soft credit checks, and quick access to funds make leveraging your home equity easier than ever.

Ready to explore your options? Visit HomeEQ today to find your personalized rate and start your application!