HELOC vs. home equity loan vs. cash-out refi

If you've owned a home for a few years, you probably have equity — the gap between what the house is worth and what you owe. There are three main ways to turn that equity into cash: a home equity line of credit (HELOC), a home equity loan, and a cash-out refinance. They're often pitched interchangeably, but they have different rate structures, different costs, and very different failure modes.

The three tools at a glance

• HELOC: a revolving credit line secured by your home. Variable rate, draw what you need when you need it, pay interest only on what you've drawn. A second lien — your existing mortgage stays untouched.
• Home equity loan: a lump sum at a fixed rate with fixed payments, also a second lien. Sometimes called a 'second mortgage,' which is literally what it is.
• Cash-out refinance: replaces your entire existing mortgage with a bigger one and hands you the difference in cash. One loan, one payment — but your whole balance moves to today's rate.

HELOC: flexibility with a floating rate

A HELOC works like a credit card with your house as collateral. During the draw period (usually 10 years) you can borrow, repay, and re-borrow, often with interest-only minimum payments. Then the repayment period begins and the balance amortizes — payments can jump sharply. Rates float with the prime rate, so your cost changes with the Fed. Closing costs are low (often zero), which makes a HELOC excellent as a standby emergency line or for staged expenses like a phased renovation.

Home equity loan: certainty, priced in

A home equity loan gives you the full amount on day one at a fixed rate, typically 10–20 year terms. The rate is usually a bit higher than a first mortgage but the payment never changes. It fits one-time, known-cost uses: a completed renovation bid, consolidating a specific pile of high-interest debt, buying out an ex-spouse. What it doesn't offer is flexibility — you pay interest on the whole amount from day one whether you needed it all or not.

Cash-out refi: the whole-balance trap

A cash-out refinance can be the cheapest option when today's rates are at or below your existing rate — you get one loan at first-mortgage pricing. But when your existing mortgage rate is lower than the market, a cash-out refi reprices your entire balance upward just to extract some cash. That's the expensive mistake: paying a higher rate on money you already borrowed cheaply.

Which one fits which job

1. Staged or uncertain costs (multi-phase renovation, backup emergency line): HELOC — draw only what you use.
2. One-time known cost and you value a fixed payment: home equity loan.
3. Your existing mortgage rate is at or above today's rates: cash-out refi — one loan, best pricing, and you might improve the rate on the whole balance.
4. Your existing rate is well below market: keep the first mortgage, use a HELOC or home equity loan for the new money.
5. Small amounts or short payoff horizons: consider whether a 0% intro card or unsecured loan avoids putting your house on the line at all.

The side-by-side

Here's the comparison in one table, using estimated 2026 pricing for a borrower with good credit and plenty of equity. Rates shown are illustrative spreads, not quotes — HELOCs float with the prime rate, while the other two are fixed at closing. The last row is the one people skip: what happens to your existing first mortgage.

Two practical notes on shopping these. Credit unions are disproportionately competitive on HELOCs and home equity loans, so include at least one in your quotes. And ask every lender for the same three numbers in writing — the margin over prime (for HELOCs), the total closing costs, and any annual or early-closure fees — because teaser rates for the first six months are common and tell you nothing about what year three costs.

The bottom line

Match the structure to the job: HELOC for flexible or staged needs, home equity loan for fixed one-time costs, cash-out refi only when repricing your whole mortgage is a feature rather than a penalty. Compare total interest cost — not just the headline rate — and never forget that every one of these puts your home behind the debt.