Skip to main content

Which Is Better: A Cash-Out Refinance Or A HELOC? | reAlpha Mortgage

July 29, 2025

9 minutes

Which Is Better: A Cash-Out Refinance Or A HELOC? | reAlpha Mortgage

If you’re like most homeowners, you’ve seen your property value increase significantly in recent years. That equity? It's not just a number on paper; it’s a real financial asset. But tapping into it raises a crucial question: Should you go with a cash-out refinance or a HELOC (Home Equity Line of Credit)?

Both options let you convert home equity into usable funds. But they work differently, and choosing the wrong one could cost you thousands over time.

Don’t worry, we’ve got you.

In this guide, you’ll learn the difference between cash-out refis and HELOCs, when to choose one over the other, and how to avoid common pitfalls. Let's dive in.

Key Takeaways:

  • Cash-out refinance replaces your mortgage, while a HELOC adds a second loan.
  • Refinances may offer lower interest rates but come with higher closing costs.
  • HELOCs provide flexible access to equity, great for ongoing projects.
  • Understand how each impacts your long-term finances, credit, and taxes.
  • Always compare rates, fees, and terms before choosing a product.

What’s a Cash-Out Refinance?

A cash-out refinance replaces your current mortgage with a new one, ideally at a better rate and for a larger amount. The difference between your old loan and the new one is paid to you in cash.

Pro Tip: Think of it as resetting your home loan with a withdrawal built in.

Pros:

  • Potentially lower fixed interest rates compared to HELOCs
  • Consolidates debt into one payment
  • Could improve cash flow if the rate drops

Cons:

  • Higher closing costs (2–5% of the loan amount)
  • Restarting a new loan term
  • Longer approval process

What’s a HELOC?

A Home Equity Line of Credit (HELOC) is a revolving credit line secured by your home. You borrow as needed, up to a limit, and repay only what you use.

Pros:

  • Flexible, on-demand access to funds
  • Only pay interest on what you borrow
  • Ideal for ongoing expenses like renovations

Cons:

  • Variable interest rates = unpredictable payments
  • It can feel like a credit card secured by your home
  • Typically, a second mortgage

Side-by-Side Comparison


Feature
Cash-Out Refinance
HELOC
Loan Type
New mortgage
Second mortgage
Interest Rate
Usually fixed
Usually variable
Disbursement
Lump sum
As-needed basis
Closing Costs
Higher
Lower or none
Use Case
Large expenses
Ongoing projects
Approval TimeLongerShorter

When Should You Use a Cash-Out Refinance?

Consider this route if:

  • You want to lock in a lower mortgage rate
  • You plan to stay in your home long-term
  • You have significant, one-time expenses (like college or debt consolidation)

Heads up: If current interest rates are higher than your existing mortgage, this option may not be ideal.

When Should You Use a HELOC?

A HELOC might be a better fit if:

  • You want ongoing access to funds
  • You’re comfortable with rate fluctuations
  • You prefer minimal upfront costs

Real Talk: It’s About Long-Term Impact

Choosing between a HELOC and a cash-out refi isn’t just about today’s need; it’s about how that decision impacts your future. Think about monthly payment changes, how they affect your credit profile, and how quickly you plan to repay.

Trusted Tools and Partners

We recommend exploring resources like:

  • reAlpha Mortgage – A licensed mortgage broker (NMLS #1743790) helping you compare the smartest loan options to tap your home equity.
  • reAlpha – A commission-free homebuying platform with educational tools for homeowners seeking smarter equity decisions.

Find the Perfect Mortgage for Your Dream Home with reAlpha Mortgage.

Compare options, calculate payments, and get expert guidance - all in one place.

Ad Icon

Conclusion: Choose Smart, Act Bold

Buying your dream home — or tapping into its equity — doesn’t have to mean draining your savings. With reAlpha Mortgage, you could unlock thousands in upfront savings and even receive up to 75% of your buyer agent’s commission back.

Here’s how it stacks up:

  • 25% rebate for using a reAlpha agent
  • 50% when you bundle with reAlpha Mortgage
  • 75% when you add Title services

Whether you're refinancing, pulling equity, or buying a new home — explore your rebate potential and make your next move smarter with reAlpha Mortgage.

FAQs

What’s the main difference between a cash-out refinance and a HELOC?

A cash-out refinance replaces your existing mortgage with a new one, while a HELOC is a second loan that functions like a credit card tied to your home equity.

Does a HELOC or cash-out refi hurt your credit score more?

Both may cause a small, temporary dip due to the credit inquiry and the new account. But responsible use and on-time payments can strengthen your score.

Which has better rates: HELOC or cash-out refinance?

Typically, cash-out refinances have lower fixed rates. HELOCs usually have variable rates, which can increase over time.

Can I use funds from a HELOC or refinance for anything?

Yes. Many use them for renovations, tuition, or debt consolidation. Just be mindful, it’s still secured by your home.

Are there tax benefits?

Interest on HELOCs or refinanced loans may be tax-deductible only if used for home improvements. Always consult a tax advisor.

Disclosures:

  • Mortgage product availability, terms, and approval are subject to underwriting and credit approval.
  • Interest rates and terms are subject to change based on market conditions.
  • Not an offer to extend credit. For informational purposes only.
  • reAlpha Mortgage is a licensed mortgage brokerage under NMLS #1743790.
  • reAlpha is a real estate technology platform that helps you buy homes smarter, with rebates and expert guidance throughout your journey.
  • This content does not constitute legal, tax, or financial advice. Always consult qualified professionals.

Find the Perfect Mortgage for Your Dream Home with reAlpha Mortgage.

Compare options, calculate payments, and get expert guidance - all in one place.

Ad Icon
Subscribe to the newsletter

Get the latest market trends, homebuying tips, and insider updates—straight to your inbox. No fluff, just the good stuff.

Article by

NK
Nathan Knottingham

Proudly serving as Head of Go-to-Market Strategy at reAlpha, focusing on holistic homeownership journeys.

Related Topics