HELOC vs. Cash-Out Refinance
Both turn home equity into cash. They just do it in very different ways.
HELOC
Cash-out refinance
Best for
Ongoing or uncertain expenses, like a phased remodel
One big, known expense
How you get the money
A line of credit you draw from as needed
A lump sum at closing
Your current mortgage
Stays exactly as it is
Gets replaced by a new loan
Payments
A second payment, usually adjustable
One new payment, usually fixed
Closing costs
Typically lighter
Typically heavier, like a full mortgage
Watch out for
A payment that can change over time
Giving up your existing loan terms
Our take: If your current mortgage terms are good, a HELOC lets you keep them. If you need a big lump sum and want a single payment, a cash-out refinance is cleaner.
