Home equity comparison
Cash-out refinance vs HELOC
Your next move starts with the right questions. Compare the structure, costs, and tradeoffs before you choose.
Published by Equity Edge Lending Inc.
Updated October 25, 2026 · Primary sources
The short answer
A cash-out refinance versus a HELOC is a choice about what happens to the mortgage you already have. The Consumer Financial Protection Bureau says a cash-out refinance replaces your existing mortgage with a bigger mortgage, and you take the difference in cash. A home equity line of credit is an open-end line that lets you borrow repeatedly against home equity, and if you already have a mortgage it is generally a second mortgage you pay in addition to the first.
Neither structure is automatically less expensive. The CFPB says a cash-out refinance may be more or less expensive than a HELOC depending on the terms, and that homeowners should look at the interest rate on the new mortgage, especially if it is higher than the rate on the current mortgage. This page does not quote a rate, an APR, a payment, or an approval outcome. Equity Edge Lending Inc. does not publish a commitment to lend here.
- A cash-out refinance replaces the existing mortgage
- A HELOC usually sits behind the first mortgage as a second lien
- Closing costs are often part of a cash-out refinance
- A HELOC can limit a later refinance of the first mortgage
First published October 25, 2026 · Company NMLS #2808857
Cash-out refinance vs HELOC at a glance
| Question | Cash-out refinance | HELOC |
|---|---|---|
| What happens to the current mortgage? | It is replaced by a new, larger mortgage | It generally stays in place; the line is a separate second mortgage |
| How do you receive cash? | As the difference after the new mortgage pays off the existing one | By drawing on a credit limit during the draw period |
| Where does the cash come from? | The difference after a new, larger mortgage replaces the existing one | Draws on a credit limit; paying the balance down can replenish available credit |
| What can change after closing? | The new mortgage's rate and other terms replace the old loan | A variable rate can change the payment, and the lender may limit further draws |
These are category differences, not offers. The CFPB comparison of loans similar to a HELOC is the source for the cash-out definition on this page.
What a cash-out refinance does
With a cash-out refinance, you replace your existing mortgage with a bigger mortgage and take the difference in cash. The CFPB notes that you often have to pay closing costs, and that you should consider the interest rate carefully, especially when the new rate is higher than the rate on your current mortgage. Depending on the terms, a cash-out refinance may be more or less expensive than a HELOC.
Replacing the first mortgage means the new loan's rate, term, and payment apply to the balance you already owed, not only to the cash you take out. That is the tradeoff against leaving the current first mortgage alone. This page does not estimate that tradeoff in dollars.
What a HELOC does, including as a second mortgage
A HELOC is an open-end line of credit that lets you borrow repeatedly against your home equity. The CFPB describes that equity as the value of the home minus the amount you owe on your mortgage. During the draw period you can generally spend up to the credit limit. When the draw period ends, you stop borrowing and enter a repayment period. Monthly payments are often significantly higher then. HELOCs usually have a variable interest rate, so the payment may change from month to month.
If you already have a mortgage, the CFPB treats a HELOC as a second mortgage that you pay in addition to the first. A second mortgage, or junior lien, is a loan secured by the house while another loan is also secured by the house. Home equity loans and HELOCs are common examples. An open-end second lets you draw again as you pay the balance down, up to the credit limit. A closed-end second pays the full amount up front and does not let you redraw. The word "second" means that if the home is sold to pay the debts, this loan is paid after the first mortgage.
A closed-end home equity loan is a different comparison from a cash-out refinance. For draws versus a lump-sum second, use home equity loan vs HELOC.
Keeping the first mortgage, or replacing it
A HELOC, a home equity loan, or a home equity contract generally leaves the existing first mortgage in place, subject to title and program requirements. A cash-out refinance replaces that mortgage. Homeowners who want to keep the current first mortgage are usually looking at a second lien or a home equity contract, not a refinance of the first.
A HELOC can also change a later refinance of the first mortgage. The CFPB says that once you take out a HELOC, you may have to get the HELOC lender's approval to refinance the first mortgage. That lender can refuse. If it refuses, you may need to pay off the HELOC in order to refinance.
Local comparisons that include both structures are on the California home equity options page, including Los Angeles, Orange County, and San Diego. The San Diego page is the guide for homeowners comparing a HELOC with other ways to take cash while leaving a refinance of the first mortgage as a separate question.
Risks both products share
Both use the home as collateral. The CFPB says that if you fall behind on a HELOC or cannot repay it on schedule, you could lose your home. The same agency says a major risk of a home equity loan or HELOC is that failure to repay can mean losing the home because the equity is the collateral. For a cash-out refinance, the CFPB's research note says the home is collateral for the new loan, and failing to make payments or meet other loan conditions can result in losing the home through foreclosure. This page does not repeat that note's statistics.
A HELOC has additional limits the CFPB describes. If the home's value decreases significantly, the lender might not allow additional credit. The lender might also freeze further draws if your financial circumstances change and the lender does not believe you will be able to make the payments. The CFPB HELOC booklet is the shopping checklist for those terms.
Adding a second mortgage increases your overall debt. The CFPB warns that using home equity to pay other debts does not make those debts disappear: you are taking one loan to repay another, and the home is the collateral. For that use of a line, read HELOC for debt consolidation. A reverse mortgage is a separate product, including the age and repayment rules for a HECM. Those facts are on reverse mortgage pros and cons.
If you are having trouble paying your mortgage, the CFPB says to talk with a housing counselor before taking out a home equity loan or HELOC. A HUD-approved housing counseling agency can also help compare alternatives to a HELOC. The CFPB points readers to HUD or to (800) 569-4287, and to (855) 411-2372 to be connected with a HUD-approved agency.
Questions to ask before you choose
- Does this offer replace my current first mortgage, or sit behind it?
- What cash is left after closing costs and any payoff of the existing loan?
- Is the rate fixed or variable, and what event can change the payment?
- If I take a HELOC, what has to happen before I can refinance the first mortgage later?
- What happens if I sell, move, or cannot make the payment?
These questions are a checklist, not a recommendation. Whether a line fits at all is covered in Is a HELOC a good idea?. How to line up written HELOC offers, without a rate posted on this site, is covered in HELOC rates comparison.
Frequently asked
Common questions
What is the difference between a cash-out refinance and a HELOC?+
A cash-out refinance replaces your existing mortgage with a larger mortgage and you take the difference in cash. A HELOC is a line of credit secured by the home. If you already have a mortgage, the CFPB treats the HELOC as a second mortgage that you pay in addition to the first.
Does a HELOC replace my first mortgage?+
No. A HELOC is generally a separate loan. A cash-out refinance is the structure that replaces the existing mortgage. A later refinance of the first mortgage may still require the HELOC lender's approval.
Can a HELOC make it harder to refinance later?+
Yes, it can. The CFPB says you may need the HELOC lender's approval to refinance the first mortgage, and that the HELOC lender can refuse. If the lender refuses, you may need to pay off the HELOC in order to refinance.
Is a cash-out refinance the same as a home equity loan?+
No. A home equity loan is commonly a lump-sum second mortgage that leaves the first mortgage in place. A cash-out refinance replaces the first mortgage with a new, larger one. The lump-sum second versus a HELOC is a separate comparison.
Does this page quote a rate or an approval?+
No. It describes the structures in CFPB guidance. It is not a rate sheet, an APR disclosure, or a commitment to lend. Pricing and eligibility depend on the lender, the property, and underwriting.
Sources and further reading
- CFPB — What other types of loans are similar to a HELOC?
- CFPB — What is a home equity line of credit (HELOC)?
- CFPB — What is the difference between a home equity loan and a home equity line of credit (HELOC)?
- CFPB — What is a second mortgage loan or "junior-lien"?
- CFPB — How a HELOC can affect refinancing a first mortgage
- CFPB — What You Should Know About Home Equity Lines of Credit (PDF booklet)
- CFPB — Office of Research: cash-out refinance mortgages and their borrowers, 2013 to 2023
This page is general education, not legal, tax, or financial advice, and it is not a commitment to lend. Program availability, terms, and underwriting vary by lender and by situation. Review any agreement with qualified legal, tax, and financial professionals before signing.
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