Maximizing Your Home Value: HELOC or Cash-Out Refinance?

Estimated reading time: 4 minutes

As a homeowner, there are several ways to access your home equity for things you need. Two popular options are a cash-out refinance or a home equity line of credit. Both methods turn some of your home’s equity into funds.

However, each has its own benefits and drawbacks, depending on what your home financing goals are. Let’s look at both processes and help you decide which is your best fit.

What is a Cash-Out Refinance?

A cash-out refinance replaces your mortgage with a new loan for a larger amount than your existing loan. Once closing costs are sorted and you’ve paid off the previous loan balance, you’ll receive the difference between the two loans. You can typically borrow up to 80% of your home’s worth if you have at least 20% in equity. However, this is dependent on how strong your credit is and how much equity is accrued in the home.

As a cash-out refinance is a new mortgage, you’ll go through an application process like your first loan. Lenders will be examining your credit history and scores. In addition, they may look at your bank statements, your debt-to-income ratio, your property’s loan-to-value ratio, your previous loan terms, and the balance needed to pay off your previous loan.

What are the Benefits of a Cash-Out Refinance?

If interest rates have dropped since you got your original mortgage, you may be able to benefit from a lower monthly payment. However, as you’re taking out a larger loan than your previous mortgage, your loan’s principal will be higher. This could keep your monthly mortgage payment around the same instead of decreasing.

You can use the proceeds however you’d like, such as debt consolidation, home maintenance, renovations, or school costs.

What is a Home Equity Line of Credit?

A home equity line of credit, typically known as a HELOC, is a second mortgage that gives you access to funds based on the value of your home. Your funds are distributed through a revolving, open line of credit that functions similarly to a credit card.

HELOC terms may vary based on the lender, however, they typically have two phases: a draw period and a repayment period. During the draw period, you’re allowed to borrow as needed, up to a certain limit, and make interest-only payments. The draw period can vary but usually is from five to ten years. The second phase is the repayment period, which is typically around 20-30 years. This is when you must pay back both the principal and interest of the loan.

Since HELOC terms can be different with every lender, it’s important to work with a Licensed Loan Originator who will walk you through the specifics to make sure this option fits your needs.

So, Which Works Best for You?

With a HELOC, borrowers can take cash out multiple times on an as-needed basis. However, your finances must be able to handle your original mortgage payment as well as the HELOC principal and interest. These loans often have adjustable rates instead of fixed, meaning your monthly payments will change over the length of the loan.

On the inverse, a cash-out refinance replaces your current mortgage with a totally new loan. Monthly payments are offered with a long-term fixed rate, sometimes at a lower percentage than HELOC rates. While a HELOC allows you to draw funds as needed, a cash-out refinance delivers your money all at once.

Meeting Your Financial Goals

In September 2025, refinance activity surged. According to the National Association of Home Builders, this surge is the largest monthly increase in refinance activity since the ultra-low rates seen during the COVID-19 pandemic. Refinance activity rose 29.7% since August on a seasonally adjusted basis, marking the sharpest monthly gain since 2020.

Whether the rates are rising or falling, your home financing team matters. When you’re paired with a Licensed Loan Originator, you’re given the tools to meet your long-term home financing goals. Contact us today to start a pre-approval!