A home equity loan gives you a fixed lump sum at a fixed rate as a second mortgage; a HELOC is a revolving credit line with a variable rate you draw from as needed; a cash-out refinance replaces your existing mortgage with a larger one and hands you the difference in cash. All three are secured by your home, so all three put it at risk of foreclosure if you stop paying. The right one depends on whether you need a known amount now, ongoing access, or a single new first mortgage.
The 30-second answer
- Need a known, one-time amount and want a predictable payment? A home equity loan usually wins.
- Need flexible access over time (a phased renovation, ongoing costs)? A HELOC fits better.
- Want to fold the cash into one loan and your current mortgage rate is already high? A cash-out refinance can make sense.
How the three differ
| Feature | Home equity loan | HELOC | Cash-out refinance |
|---|---|---|---|
| What it is | Second mortgage, lump sum | Second mortgage, revolving line | New, larger first mortgage |
| Rate type | Fixed | Usually variable | Fixed or adjustable |
| How you get the money | All at once | Draw as needed during a draw period | Lump sum at closing |
| Payment | Fixed principal + interest | Interest-only or small payments during draw, then full repayment | One new mortgage payment |
| Touches your 1st mortgage? | No | No | Yes - replaces it |
| Best when | You know the exact amount | Costs are uncertain or spread out | Your current rate is high anyway |
A worked comparison
Say your home is worth $400,000 and you owe $250,000 on a first mortgage locked at a low 4.0% with about 25 years left (roughly $1,319.59/month). You want $50,000 in cash. Two common routes:
- Keep the first mortgage, add a home equity loan: a $50,000 home equity loan at 8.5% over 15 years runs about $492.37/month. Your combined housing payment becomes roughly $1,811.96/month, and your cheap 4.0% mortgage stays untouched.
- Cash-out refinance: replace everything with a new $300,000 first mortgage. At 6.75% over 30 years that is about $1,945.79/month - and you have given up your 4.0% rate on the original $250,000.
In this case the home equity loan is both cheaper monthly and protects a great existing rate. A cash-out refinance usually only beats it when your current mortgage rate is already at or above today's rates, so you are not sacrificing anything by replacing it.
The CLTV ceiling applies to all three
Lenders cap your total borrowing by combined loan-to-value (CLTV) - all mortgage debt divided by the home's value - typically around 80-85%. On a $400,000 home with a $250,000 balance, an 80% CLTV limit leaves about $70,000 of borrowing room ($400,000 x 0.80 = $320,000, minus the $250,000 you owe). Push to 85% and that rises to roughly $90,000. Run your own figures through the Home Equity Loan Calculator before you assume an amount is available.
The HELOC wrinkle: variable rate and two phases
A HELOC has a draw period (often around 10 years) when you can borrow and repay repeatedly, frequently paying interest only, followed by a repayment period (often around 20 years) when the line closes and you amortize the balance. Because the rate is usually variable, your payment can climb if rates rise - and the jump from interest-only draws to full principal-and-interest repayment can be a shock. A home equity loan avoids both surprises with a fixed rate and a fixed payment from day one. If you like the idea of paying down a fixed second mortgage faster, the Extra Payment Mortgage Calculator shows how extra principal shortens the term.
Don't forget closing costs and the total-interest picture
Home equity loans and cash-out refinances usually carry closing costs (appraisal, origination, title), while many HELOCs have low or no upfront fees. But upfront cost is only half the math - stretching any of these over a long term can quietly cost more in total interest than the cash you pulled out. The same $50,000 home equity loan at 8.5% costs about $38,626.56 in interest over 15 years but only about $24,391.41 over 10 years. Compare total cost, not just the monthly payment, with the Home Equity Loan Calculator and the broader Mortgage Calculator for the refinance option.
The risk all three share
Every option here turns your house into collateral. Miss enough payments and the lender can foreclose - that is the trade-off for rates far below an unsecured personal loan. Borrow only what you can comfortably repay, and keep your debt-to-income ratio in a range a lender (and your own budget) can live with.
For an independent, ad-free explainer comparing home equity loans, HELOCs, and cash-out refinancing, the U.S. Consumer Financial Protection Bureau is a reliable reference.
Try it yourself
Run your own numbers in the free Home Equity Loan Calculator — instant, private, no sign-up.
Open the Home Equity Loan Calculator →Frequently asked questions
- Is a home equity loan or a HELOC cheaper?
- It depends on rates and how you use the money. A home equity loan has a fixed rate so your cost is locked in, while a HELOC's variable rate can start lower but rise later. If you need a known lump sum, the home equity loan's predictability usually makes it the safer value; if you only draw small amounts occasionally, a HELOC can cost less in interest because you pay only on what you use.
- When is a cash-out refinance better than a home equity loan?
- A cash-out refinance is usually better only when your current mortgage rate is already at or above today's rates. In that case, replacing your loan costs you nothing extra and consolidates everything into one payment. If you have a low existing rate - say 4.0% - a cash-out refinance forces you to give it up on your entire balance, which is why a home equity loan that leaves the first mortgage alone is often cheaper.
- Does a HELOC payment really change over time?
- Yes. Most HELOCs have a variable rate, so the payment can rise or fall as rates move, and the structure changes in two phases. During the draw period you often pay interest only; once the repayment period begins, the line closes and you must repay principal plus interest, which can sharply increase the payment. A home equity loan avoids this with a fixed rate and a level payment for the full term.
- How much can I borrow with any of these options?
- You are limited by combined loan-to-value (CLTV), typically around 80-85%. Multiply your home's value by the limit, then subtract what you still owe. On a $400,000 home with a $250,000 first mortgage, an 80% limit ($320,000) minus $250,000 leaves about $70,000 of borrowing room; an 85% limit leaves about $90,000.
- Can I lose my home with these loans?
- Yes. A home equity loan, HELOC, and cash-out refinance are all secured by your home, so the lender can foreclose if you fail to repay. That collateral is exactly why their rates are far lower than an unsecured personal loan - but it means you should borrow only an amount your budget can handle even if your income dips.
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