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Cash-Out Refinance vs Home Equity Loans vs HELOCs – What’s the difference?

You probably already know that owning a home is a smart investment, but did you know you may be able to use the equity in your home to borrow money to use any way you want? You can use the money to pay for home improvements, add to a rainy day or investment fund, or you consolidate your existing debt like credit cards or student loans, at a lower interest rate.

As a homeowner, what options do you have to borrow money? Cash-out Refinance, Home Equity Loans, and Home Equity Line of Credit (HELOC) are all methods of financing using the equity in your home. The option you choose depends on your financial needs and your current goals.

Before making any decisions, let’s dive into what’s involved with each loan and the differences between them.

Cash-out Refinance

A cash-out refinance is a loan that allows you to access the equity in your home by refinancing with a new forward mortgage. 

  • A cash-out refinance replaces your existing home loan with a new loan and loan terms, leaving you with just one monthly payment. 
  • The new loan balance is greater than your current loan, with the difference given to you directly in cash to be dispersed all at once.
  • The amount you can take out is based on your home value, the remaining balance of your current mortgage, and varies depending on the loan type you select.
  • Cash received from a mortgage refinance can be used for various purposes including consolidating debt, funding home renovations, and covering large expenses like medical bills or college tuition.

How to use cash-out refinance to pay off debt.

  • A cash-out refinance can be done on many property types including investment properties or second homes.
  • With a cash-out refinance your interest rate will be depending upon market rates at the time your new loan is originated. You can select a fixed or adjustable-rate mortgage
  • Typical closing costs range from 3-6% of the loan amount in addition to requiring mortgage insurance if more than 80% of the home’s value is borrowed.

You can use the money for anything from paying off high-interest debt, to funding home renovations or covering large expenses like medical bills or college tuition.

More about cash-out refinance and how it works.

Home Equity Loan

If you have a sizable amount of equity in your home, a home equity loan, commonly referred to as a second mortgage, may be an option. As with a cash-out, they can be used for debt consolidation, home upgrades, or other expenses.
  • The main difference between a home equity loan and a cash-out refinance is that it’s a loan taken out in addition not your existing mortgage with a separate payment each month.
  • Home equity loans offer a specific amount of cash, so you should know how much you want to borrow.
  • The amount you can borrower is also based on the value of your home and how much you still owe on your current mortgage.
  • The funds received from a home equity loan may be used in a variety of ways like a cash-out refinance.
  • You may be able to get a home equity loan on an investment property, but they come with higher risk and may be more difficult to obtain.
  • Home equity loans offer at a lower rate than other debt products like credit cards but may be higher than a primary mortgage loan.
  • Home equity loans often come with the similar charges and fees to a primary mortgage.

Home Equity Line of Credit

A Home Equity Line of Credit (HELOC) may be another option if you need to borrow money and have a solid income stream and good credit.   
  • HELOCs are an additional debt on top of your mortgage and adds another monthly payment to manage.
  • The biggest difference between a home equity loan and a HELOC is that a HELOC provides a revolving line of credit, instead of a one-time pay out.
  • A HELOC uses your primary residence as collateral against the loan, so again the value of your home is a factor in determining how much you can borrow.
  • Like the other two options, the funds from a HELOC may be used as you choose.
  • In some cases, a HELOC may be done on an investment property, but is much more difficult
  • HELOC rates tend to be lower than home equity loans but are variable and impacted by changes in the market.
  • HELOCs may also have closing costs and fees.

When considering ways to access your home’s equity, each option has its benefits. A cash-out refinance offers a single, larger loan with potentially lower rates. A HELOC provides flexibility in borrowing smaller amounts as needed, and a home equity loan offers predictability with fixed payments.

Assess your goals and review your cash-out refinancing options with complementary debt review by calling a PHH loan officer at (855) 233-9749.

Apply Now


Any equity cashed out in refinance will increase the mortgage balance owed on the property. Rates are not guaranteed and based on the applicant’s credit history at the time of application.









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