What Is the Difference Between a HELOC, a Home Equity Loan, and a Cash-Out Refinance?

Q: Which option fits your situation?

It depends on your situation:If you want flexibility and aren't sure exactly how much you'll need over time, a HELOC is commonly considered, even though its rate is variable and often higher.If you want one known lump sum with predictable payments from day one, a home equity loan is commonly considered.If your cash need is large relative to your current mortgage balance, a full cash-out refinance is often suggested instead of either second-lien option.If your existing first-mortgage rate is well below current market rates, a second lien is often preferred specifically to leave that low rate undisturbed, even at a higher rate on the new second loan.If your existing first-mortgage rate isn't especially low, a cash-out refinance is usually the cheaper overall choice.

A HELOC is a revolving, usually variable-rate credit line you draw from as needed, a home equity loan is a fixed-rate lump sum, and a cash-out refinance replaces your entire first mortgage with a new, larger one. Which is better for you typically depends on how much money you need, whether you want payment certainty, and whether keeping your current mortgage rate is worth paying more for a second loan.

Last updated July 22, 2026

How does a HELOC work?

A home equity line of credit (HELOC) works a lot like a credit card. It gives you a credit limit tied to your home's equity, and you draw from it as needed rather than getting one lump sum. Most HELOCs have a variable interest rate, and many allow interest-only payments during an initial draw period before switching to full principal-and-interest payments later. A HELOC is a second, or junior, lien. It sits behind your existing first mortgage, which stays completely in place.

How does a home equity loan work?

A home equity loan, sometimes called a second mortgage, gives you the full amount upfront as a single lump sum. Unlike a HELOC, it typically comes with a fixed interest rate and fixed principal-and-interest payments starting from your very first payment. Like a HELOC, it's a second lien, so your original first mortgage and its rate are not touched or changed.

Not every lender offers both products, so which one is available to you can depend on which lender you work with.

How is a cash-out refinance different?

A cash-out refinance does not add a second loan. Instead, it replaces your existing first mortgage entirely with a new, larger first mortgage, and you receive the difference in cash. Because it stays in first-lien position, a cash-out refinance is generally the cheapest way to borrow against home equity. Second-lien products like HELOCs and home equity loans are priced off a different, generally higher benchmark and carry an added cost because they sit behind the first mortgage in a foreclosure, which adds risk for the lender.

Which option fits your situation?

It depends on your situation:

If you want flexibility and aren't sure exactly how much you'll need over time, a HELOC is commonly considered, even though its rate is variable and often higher.
If you want one known lump sum with predictable payments from day one, a home equity loan is commonly considered.
If your cash need is large relative to your current mortgage balance, a full cash-out refinance is often suggested instead of either second-lien option.
If your existing first-mortgage rate is well below current market rates, a second lien is often preferred specifically to leave that low rate undisturbed, even at a higher rate on the new second loan.
If your existing first-mortgage rate isn't especially low, a cash-out refinance is usually the cheaper overall choice.

Key facts
Lien position	Second lien
How you get funds	Draw as needed, revolving
Rate type	Typically variable
Early payments	Often interest-only during draw period
Effect on current first mortgage	Untouched
Typical rate range (as of 2026-07)*	Roughly 7% to 12%, depending on credit and LTV

Sources

https://www.consumerfinance.gov/ask-cfpb/what-is-a-home-equity-line-of-credit-heloc-en-107/
https://www.consumerfinance.gov/ask-cfpb/what-is-a-home-equity-loan-en-106/
https://www.consumerfinance.gov/ask-cfpb/what-is-the-difference-between-a-home-equity-loan-and-a-home-equity-line-of-credit-heloc-en-247/
https://www.pnc.com/insights/personal-finance/borrow/what-is-a-second-mortgage.html
https://www.pnc.com/insights/personal-finance/borrow/what-is-a-cash-out-refinance.html
https://www.freddiemac.com/pmms
https://www.bankrate.com/home-equity/heloc-rates/
https://www.bankrate.com/home-equity/federal-reserve-and-home-equity-rates/

Educational information only, not individualized financial or legal advice. Program details and rates change; verify current terms with a licensed loan officer before making a decision.