If you've built up equity in your home, you've probably run into two options for turning some of it into cash: a home equity line of credit (HELOC) or a cash-out refinance. They can both get you money to work with, but they do it in very different ways — and the right one depends on your specific situation, not just which one sounds better.

How a HELOC works

A HELOC is a separate line of credit secured by your home, sitting alongside your existing mortgage rather than replacing it. Think of it like a credit card with your home as collateral: you're approved for a credit limit, you draw what you need when you need it, and you typically pay interest only on the amount you've actually drawn — not the full limit.

This makes a HELOC a natural fit when you're not sure exactly how much you'll need, or when you'll need it over time — a renovation with a rolling budget, for example, or an ongoing expense you want flexible access to.

How a cash-out refinance works

A cash-out refinance replaces your current mortgage entirely with a new, larger one, and you receive the difference between the old balance and the new loan amount as cash at closing. Instead of two separate payments (your mortgage plus a HELOC payment), you end up with one new mortgage payment.

This tends to make more sense when you know the specific amount you need up front, and when your current mortgage rate compares favorably enough to what you'd be refinancing into that the math still works in your favor.

The real question to ask

The choice usually comes down to a few honest questions:

  • Do you know the exact amount you need, or is it more open-ended? A fixed amount often points toward a cash-out refinance; an ongoing or uncertain need often points toward a HELOC.
  • What's your current mortgage rate? If refinancing means giving up a rate that's meaningfully better than what's currently available, a HELOC lets you leave your first mortgage untouched.
  • Do you want one payment or are you comfortable managing two? A cash-out refinance consolidates into a single payment; a HELOC adds a second one.

Neither is automatically "better"

Both options are legitimate tools — the right one depends entirely on your numbers, your timeline, and what you're trying to accomplish. This is exactly the kind of decision worth walking through with actual numbers rather than general rules of thumb, since the details of your specific mortgage and equity position change the answer. If a HELOC sounds like the better fit, see our full HELOC page for more on how it works and where we offer it.