Borrow against equity · Compare secured debt
Home equity loan, HELOC, or cash-out refinance?
These products can all turn home equity into borrowed money, but they deliver funds, change existing debt, and adjust payments in different ways.
The short answer
A home equity loan usually delivers one lump sum as a separate loan. A HELOC is reusable credit during a draw period and usually has a variable rate. A cash-out refinance replaces the first mortgage with a larger loan. Compare the entire secured-debt picture.
01 · Three structures
Start with how money is delivered and repaid
A home equity loan is closed-end credit: the borrower generally receives a lump sum and repays it on a schedule. A HELOC is open-end credit: the borrower can draw repeatedly up to an available limit during the draw period. A cash-out refinance creates a new first mortgage large enough to pay off the old one and deliver additional proceeds.
- Lump sum, reusable line, or replacement first mortgage
- Fixed, adjustable, or variable rate and how it can change
- Existing first-mortgage rate and balance that remain or are replaced
- Draw period, repayment period, and access-to-credit conditions
- Upfront costs, annual fees, transaction fees, and early-closure charges
- Total secured balance, monthly payments, and payoff obligations
02 · Existing debt
Second-lien borrowing keeps the first mortgage; refinancing replaces it
When a homeowner already has a mortgage, a home equity loan or HELOC is commonly a second mortgage paid in addition to the first. A cash-out refinance instead replaces the first mortgage. Compare the existing first-lien rate and remaining term before deciding whether replacing that entire balance makes sense.
A cash-out refinance applies its new terms to the replacement mortgage balance as well as the cash received. A second loan leaves the first loan's terms in place but creates another payment.
03 · Draw and repayment
A HELOC can change even when no new line is opened
During the draw period, available credit can generally be borrowed, repaid, and borrowed again under the agreement. HELOCs usually have variable rates, so payments may change with the rate and balance. When the draw period ends, new borrowing stops and repayment begins; the payment can rise substantially or the agreement may require a large balance payment.
Access is not guaranteed forever. CFPB guidance notes that a lender may reduce or freeze further draws when home value falls significantly or specified financial circumstances change. Do not treat an unused line as certain emergency cash.
04 · Full pricing
Compare more than rate and first-month payment
Record origination and appraisal costs, annual or inactivity fees, draw fees, minimum borrowing requirements, early-closure charges, rate formulas, and fixed-rate conversion terms. For a cash-out refinance, include closing costs and the effect of the new rate and term on the full replacement balance.
Test the same borrowing amount and holding period across choices. Include both mortgage payments for a second-lien option and the payment after the HELOC enters repayment—not just the draw-period minimum.
05 · Home as collateral
All three choices can put the home at risk
Home equity is the property value minus debt secured by the home. Borrowing against it increases secured debt and reduces the equity remaining for a later sale or need. If required payments cannot be made, the home may be subject to foreclosure. Turning unsecured debt into home-secured debt changes the consequence of nonpayment.
06 · Sale and refinance
Consider how a second lien affects the next transaction
A home equity loan or HELOC commonly must be addressed when the home is sold. A HELOC can also affect a later refinance of the first mortgage because the second-lien lender may need to approve its lien position or require payoff. Ask how payoff, subordination, account closure, and early-termination fees work before opening the account.
07 · Preserve every layer
Keep the first mortgage and new-credit documents together
- Current first-mortgage statement and payoff quote
- Home equity loan or HELOC disclosures and agreement
- Cash-out refinance Loan Estimate
- Rate formula, index, margin, caps, and fixed-rate conversion terms
- Draw and repayment schedules with minimum-payment formulas
- Appraisal, lien, closing-cost, and early-termination documents
08 · Official guidance