Cash-Out Refinance vs. HELOC: Which Option is Best for You?

Your home equity isn’t just numbers on paper — it’s a potential opportunity. If your property value has climbed or you’ve paid down a chunk of your mortgage, you might have thousands of dollars in equity that could be put to work. 

From wiping out high-interest debt to funding home upgrades or college tuition, accessing cash from the value of your home can help you pay for it. But when it comes to choosing between a home equity line of credit (HELOC) vs. a refinance with cash out, the right path depends on your situation and how you plan to use the money. 

Here’s what you need to know about each option to make the right choice and ensure you and your family are using your home equity responsibly. 

Key takeaways 

• A cash-out refinance replaces your current mortgage with a different one for a higher amount, allowing you to take the difference in cash. 
• Consider a cash-out refinance if you want a lump sum upfront and predictable payments. 
• A HELOC is a revolving line of credit secured by your home’s equity.  
• Consider a HELOC if you need flexible funding over a set period and want to keep your current mortgage intact. 

What is a cash-out refinance? 

A cash-out refinance is one way to turn your home equity into cash you can use for whatever you need. 

Essentially, this type of loan allows you to replace your current mortgage with a new, bigger one — and then you take the difference in cash. Often, homeowners will use the cash for things like home upgrades, paying off credit cards, or covering major expenses. 

AmeriSave’s Cash-Out Refinance Calculator can help you see how much cash you could get and how it would impact your mortgage payment. 

What is a HELOC?

A HELOC, or home equity line of credit, is like having a credit card that’s backed by your home’s value. 

Instead of getting one lump sum like you would with a cash-out refinance, a HELOC allows you to borrow against your home’s equity for a length of time known as a draw period (usually 10 years). You’ll first be approved for a max amount, and then you can withdraw what you need. You’ll only pay interest on what you actually use during the draw period, making HELOCs super flexible for things like ongoing home projects or education expenses. 

At a glance: HELOC vs. Refinancing with cash out 

While both a cash-out refinance and a HELOC provide access to cash from your home’s value, each option works differently. To help you better understand the key differences between these loans, here’s a side-by-side comparison: 

	Cash-Out Refinance	HELOC
Loan Structure	Replaces existing mortgage with a new, larger home loan	A second mortgage, delivered as line of credit
Payout	Lump sum of money at closing	Withdrawal of funds, as needed, during a draw period (usually 10 years)
Interest Rate	Typically fixed	Typically variable
Repayment Terms	Monthly payments of principal and interest, replacing current mortgage payment	Interest-only payments during the draw period, then principal and interest. Paid in addition to current mortgage.
Closing Costs	Similar to original mortgage	Similar to original mortgage
Best For	Large, one-time expenses and securing new mortgage terms	Ongoing expenses, preserving current mortgage terms

Which option is better? 

So, cash-out refinance vs. HELOC — which one’s best? It really depends on what you need the money for and how you want to pay it back. 

A cash-out refinance may be better if you need a large lump sum of cash and want to negotiate better loan terms, like a lower interest rate. A HELOC, on the other hand, could be a smarter option if you want to keep your existing mortgage and get ongoing access to the funds. 

In the end, your goals, credit situation, and how you plan to use the cash should all play a role in your final decision.  

When a cash-out refinance makes sense

Cash-out refinancing may be a good idea if:  

• You need a large, one-time payout for a major expense. 
• You prefer fixed, predictable monthly payments. 
• Current mortgage rates are better than your existing mortgage. 
• You want to negotiate new loan terms, such as switching from an adjustable-rate loan to a fixed-rate loan. 

For example, let’s say you’re planning a major home renovation such as a kitchen overhaul or an addition to your garage. In this case, you’re probably going to need a big chunk of money upfront to cover the project. A cash-out refinance allows you to access the funds and take advantage of improved loan terms. 

When a HELOC makes sense 

A HELOC may make more sense if:  

• You have a low-interest mortgage you want to keep. 
• Your expenses are spread out, not a lump sum. 
• You plan to pay back the funds quickly. 
• You want the option to pay what you borrowed, then borrow again within the draw period. 

For example, let’s say you locked in a record-low mortgage rate in 2021, but you still want to use your home’s value to pay for college tuition or ongoing home projects. In this case, a HELOC or home equity loan would let you access the cash and preserve your existing mortgage. 

How to get started with your home equity 

Both a cash-out refinance and a HELOC can turn your home’s value into cash, helping you reach goals like completing a renovation, paying off high-interest debt, or funding your child’s education. The option you choose just depends on your situation. 

When it comes to deciding between a cash-out refinance or HELOC, consider how much money you need, when you need it, how you want to access it, and how comfortable you are with potential repayment terms. And be sure to compare lenders before diving in. 

Not sure where to start? AmeriSave’s Mortgage Experts are here to help you explore your options and secure the best loan and rates for your future. Get a fast, personalized quote today. 

Frequently asked questions 

Can I have both a cash-out refinance and a HELOC at the same time? 

It’s not likely. Most lenders won’t approve a HELOC right after a cash-out refinance, and vice versa. Too much borrowing at once raises red flags with lenders. In most cases, it’s best to choose the one equity tool that best fits your needs.  

How do interest rates compare between cash-out refinance and HELOC? 

A cash-out refinance typically comes with a fixed interest rate that stays the same throughout the life of your loan. This makes it easier to understand the total amount you’ll pay back. A HELOC usually has a variable rate that may change over time. The interest rate at the end of your draw period could be higher than when you first got approved, increasing your borrowing costs.