What Is the Difference Between a HELOC, a Home Equity Loan, and a Cash-Out Refinance?
A HELOC is a credit line you draw from as you need it, usually at a variable rate. A home equity loan is a lump sum, usually at a fixed rate. Both sit behind your current mortgage and leave it alone. A cash-out refinance replaces your mortgage with a bigger one and pays you the difference. Which fits depends on how much you need, whether you want steady payments and what your current mortgage rate is.
Last updated September 29, 2026How does a HELOC work?
It works a lot like a credit card secured by your home. You get a limit based on your equity and draw from it when you need money. Most HELOCs have a variable rate, and many let you pay only interest during the draw period before full principal-and-interest payments begin. It's a second lien, so your first mortgage stays exactly as it is.
How does a home equity loan work?
You get the whole amount up front. It usually has a fixed rate and a fixed payment from the first month. Like a HELOC, it's a second lien, so your first mortgage and its rate don't change. Not every lender offers both products.
How is a cash-out refinance different?
It doesn't add a second loan. It pays off your current mortgage with a new, larger first mortgage, and you get the difference in cash. First mortgages usually carry lower rates than second liens, because a second lien gets paid only after the first in a foreclosure, which is riskier for the lender. The trade-off is that your whole balance moves to the new loan's rate and term, not just the cash you take out.
It depends on your situation:
- You're not sure how much you'll need, or when: a HELOC lets you draw over time, though the rate usually moves.
- You want one amount and a payment that won't change: a home equity loan works that way.
- You need a lot relative to what you owe now: a cash-out refinance can put it all in one first mortgage.
- Your current mortgage rate is well below today's rates: a second lien leaves that rate in place, even if the new loan's rate is higher.
- Your current rate is at or above today's rates: a cash-out refinance lets you borrow and reprice the whole balance at once.
| Lien position | Second |
|---|---|
| How you get the money | Draw as needed |
| Rate type | Usually variable |
| Early payments | Often interest-only during the draw period |
| Your current mortgage | Unchanged |
Related questions
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/
Sourced from licensed loan officers and brokers in the FreeRateUpdate network.
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.