Cash-Out Refinance vs HELOC Explained

Cash-out refinance vs HELOC: a cash-out refinance replaces your existing mortgage with a larger mortgage and pays you the difference in cash. A home equity line of credit, or HELOC, is a separate line you can draw on while the first mortgage stays in place. The Consumer Financial Protection Bureau says a cash-out refinance often includes closing costs, and that it can cost more or less than a HELOC depending on the terms.

By the YourHomeCosts editorial desk. Last updated October 20, 2026. How we checked this: the sources below were read on October 20, 2026, and the hypothetical arithmetic was recomputed from the inputs shown. General information, not personal advice.

Educational information only. This is not financial, tax, legal, lending, insurance, or appraisal advice. Loan documents, state law, and your servicer or assessor control. Confirm every figure before you act.

What is a cash-out refinance?

The CFPB’s page on loans similar to a HELOC, last reviewed June 27, 2024, says a cash-out refinance replaces the existing mortgage with a bigger mortgage, and you take the difference in cash. You often pay closing costs. The CFPB says to look hard at the interest rate, especially when it is higher than the rate on the mortgage you already have. Depending on the terms, that new loan may cost more or less than a HELOC. This page does not pick a winner, and it does not quote a rate.

The CFPB’s HELOC booklet puts the same idea in a comparison table. A cash-out refinance can be variable or fixed. Your home is at risk. A typical advantage the booklet names is that you keep making one mortgage payment. The disadvantages it names are that closing costs are generally higher, it may take longer to pay off the mortgage, and the interest rate may be higher than the rate you have now. The amount is generally a percentage of appraised value: the existing loan plus the cash you take out. The booklet does not state one percentage that every lender must allow.

A refinance Loan Estimate can include discount points. One point is 1 percent of the loan amount, paid at closing for a lower rate. Points are a closing-cost choice on the new loan. They are not the cash you take out, and they are not a HELOC fee. Read section A of page 2 of the Loan Estimate for points that are tied to the rate. If the new conventional loan leaves you with equity under 20 percent of the home’s value, the CFPB’s PMI page says you might have to buy private mortgage insurance. That rule is explained on what is PMI. This page does not quote a PMI premium.

What is a HELOC?

The CFPB’s HELOC page, last reviewed August 28, 2026, calls a HELOC an open-end line of credit that lets you borrow repeatedly against equity. Equity is the value of the home minus the amount owed on the mortgage. The borrowing period, also called the draw period, could last 10 years, for example. That span is the CFPB’s example of how a plan can be set up. It is not a term this site promises. After the draw period, the lender may set a repayment schedule, often over 10 or 20 years on that page. The HELOC booklet describes a repayment schedule often over 10 or 15 years, or a balance due at once. The two CFPB sources describe different common spans. Read the plan you were offered. Neither span is a term this site can promise.

HELOCs usually have a variable rate, so the payment can change. The booklet’s table says a typical advantage is that you can keep repaying and borrowing for several years without a new application, and a typical disadvantage is that the repayment amount varies and repayment is often required when you sell. If you fall behind, you can lose the home. The HELOC calculator estimates a draw payment and a repayment payment from numbers you type. It is not a credit offer. A lump-sum second mortgage is a different product. That comparison is on HELOC vs a home equity loan, and the fixed-payment math is on the home equity loan calculator.

The booklet also lists charges a HELOC lender might collect: an appraisal, an application fee that might not be refunded if you are turned down, and closing costs such as attorney fees, a title search, mortgage preparation and filing, property and title insurance, and taxes. Some lenders waive some or all of the upfront costs. The booklet gives those as examples of what you might be charged. It does not set a dollar fee, and this page does not invent one. During the draw period, some plans require interest only, and others require a payment that includes some principal. When the draw period ends, the payment often rises, and some plans require the full balance at once.

How do the two loans differ?

A cash-out refinance pays off the first mortgage and puts a new, larger first mortgage in its place. A HELOC usually sits beside the first mortgage, so you have two loans and two sets of terms. The booklet’s “one mortgage payment” line is about the refinance. The HELOC line is about borrowing again without starting over. Closing costs show up on both in different ways. The CFPB says cash-out refinances often have them, and the booklet says they are generally higher on a cash-out refinance than on the other sources in that table. A HELOC can still have appraisal, application, and closing charges.

Order matters later. The CFPB’s page on refinancing with a HELOC, last reviewed February 2, 2024, says that once a HELOC is in place, you may need the HELOC lender’s approval to refinance the first mortgage. That lender can refuse. If it refuses, you may have to pay off the HELOC before the first mortgage can be refinanced. A cash-out refinance replaces the first mortgage you are refinancing. It does not, by itself, create a separate line of credit, although any existing second mortgage or HELOC stays in place unless it is paid off as part of the refinance. Neither fact makes one loan cheaper. The full-payment calculator is for a single mortgage payment with taxes and insurance. It does not model a HELOC draw and a first mortgage together.

If you already have a payoff figure for the first mortgage, the payoff explainer describes what that statement is. A cash-out refinance would pay that balance as part of the new, larger loan. A HELOC would not, unless you chose to draw on the line and send the money yourself. Those are different transactions. The figures in a lender’s Loan Estimate or HELOC disclosure control, not a sentence on this page.

How do they compare side by side?

The rows below restate the CFPB booklet’s comparison and the two CFPB question pages linked above. They are not a lender’s term sheet. Where the booklet and the HELOC question page describe repayment length differently, the table does not collapse them into one number. The question page says repayment is often over 10 or 20 years. The booklet says often over 10 or 15 years, or the full balance at once.

Cash-out refinance and HELOC, from the CFPB booklet and the CFPB question pages. Not a loan offer.
	Cash-out refinance	HELOC
What it is	New, larger first mortgage; you take the difference in cash	Separate open-end line; the first mortgage stays
Rate	Variable or fixed	Usually variable
Payments	One mortgage payment	Draw period, then repayment. Often 10 or 20 years on the CFPB question page; often 10 or 15 years, or a balloon, in the booklet
Closing costs	Often required, and generally higher in the booklet’s table	Can include an appraisal, an application fee, and closing fees. Some plans waive upfront costs
Home at risk	Yes	Yes
Later refinance of the first mortgage	The refinance replaces that first mortgage. An existing second mortgage or HELOC stays unless it is paid off	May need the HELOC lender’s approval. The lender can refuse

What does equity look like in dollars?

Hypothetical illustration, not a quote and not a lender limit. A home is appraised at $400,000 and the mortgage balance is $250,000. Equity is $400,000 minus $250,000, which is $150,000. The CFPB defines equity as the value of the home minus the amount owed on the mortgage. That subtraction is the whole illustration. It does not say how much of the $150,000 a lender will advance. The booklet says the amount you can borrow is generally a percentage of appraised value, minus what you already owe, and it does not state one percentage that every lender must allow.

A cash-out refinance would replace the $250,000 mortgage with a new, larger mortgage and pay you some of the difference, after closing costs. A HELOC would leave the $250,000 mortgage in place and add a line secured by the same home. How much of the $150,000 either one will lend is the lender’s decision. This page does not apply an 80 percent or 85 percent cap to the illustration, because the CFPB booklet does not publish one cap for both products. If the numbers you care about are a payment, use the calculators linked above with inputs you choose. Do not treat $150,000 as cash you can take home.

What if the payments are not made?

Both loans use the home as collateral. The CFPB says that if you cannot keep up with a HELOC, you could lose the home. The booklet marks home at risk as yes for a cash-out refinance as well. A missed payment is a contract problem with that lender, not a problem this site can cure. There is no product on this page to apply for, and no lender is named as a preferred source of either loan.

A reverse mortgage is a different way to borrow against equity. The reverse mortgage page describes the Home Equity Conversion Mortgage program. It is not a cash-out refinance and it is not a HELOC. The CFPB’s page on loans similar to a HELOC also names a home equity loan, a personal line of credit, and a credit card as other sources of money, with different collateral and different costs. A personal line and a credit card do not, by themselves, put the home at risk. Their rates may be higher. None of those sentences is a recommendation to open one.

Before you borrow, the CFPB says a HUD-approved housing counselor can help you compare alternatives. The counselor is not a product sold here. Bring the Loan Estimate for a refinance, or the HELOC disclosures, and ask what happens to any existing second mortgage. The answer belongs on those disclosures. A cash-out refinance replaces the first mortgage you are refinancing. It does not, by itself, create a separate line of credit, although any existing second mortgage or HELOC stays in place unless it is paid off as part of the refinance.

Questions people ask

What is the difference between a cash-out refinance and a HELOC?

The CFPB says a cash-out refinance replaces your mortgage with a bigger one and gives you the difference in cash. A HELOC is an open-end line secured by the home, and the first mortgage usually stays. A cash-out refinance often has closing costs. A HELOC usually has a variable rate.

Does a HELOC leave the first mortgage in place?

Yes, in the ordinary case the CFPB describes. The HELOC is a separate loan against equity. Refinancing the first mortgage later may require the HELOC lender’s approval.

Does a cash-out refinance pay off a HELOC I already have?

Not by itself. A cash-out refinance replaces the first mortgage you are refinancing. An existing second mortgage or HELOC stays in place unless it is paid off as part of the refinance.

Does this page recommend a cash-out refinance or a HELOC?

No. The CFPB says a cash-out refinance may cost more or less than a HELOC depending on the terms. Compare the disclosures for the loans you were actually offered.

Sources checked October 20, 2026

A short note when the guides change

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