Should I Refinance My Mortgage? Or Get a Home Equity Loan or Line of Credit?

Thinking about tapping into your home’s equity but unsure whether to refinance, get a home equity loan, or take out a HELOC? Each option works differently and has its pros and cons.

The type of loan you’ll want will depend on your financial goals and how you plan to use the money. In December 2024, interest rates averaged 7.71% to 8.86% for HELOCs, 7.30% to 7.89% for home equity loans, and 6.84% to 7.27% for refinancing. Here’s a closer look at home equity loans vs. HELOCs vs. refinancing to help you decide.

Table of Contents

1. Does a second mortgage differ from a home equity loan or HELOC?
2. Should I refinance my mortgage or consider a home equity loan or HELOC?
3. How to choose: Cash-out refi vs. home equity loan or HELOC
4. FAQ

What is a second mortgage vs. home equity loan vs. HELOC?

A second mortgage is any loan you take out against your home’s equity while keeping your current mortgage in place. Home equity loans and HELOCs are types of second mortgages, but they work differently.

• Home equity loans are lump-sum loans with a fixed interest rate and set monthly payments. Many people use them for large, predictable expenses, such as home renovations. Because they work much like traditional home loans, home equity loans are often called “second mortgages.”
• Home equity lines of credit (HELOCs) are revolving lines of credit you can draw from as needed, similar to how you would use a credit card. They typically have variable interest rates and are better for unpredictable expenses you want to spread out over time.

A refinance is not a second mortgage because it replaces your current loan with a new one, so you still have only one payment. With a cash-out refinance, you can get a larger loan and “cash out” the difference to use however you’d like. 

Read More

Cash-Out Refinance vs. Home Equity Loan Comparison 

Should I refinance my mortgage or consider a home equity loan or HELOC?

Choosing between a home equity loan, HELOC, or mortgage refinance depends on a few factors, including how much equity you’d like to pull out, your current mortgage rate, and how you’ll use the funds.

The two common types of refinancing are a standard refinance and a cash-out refinance. A standard refinance usually makes sense if you can lower your mortgage rate or monthly payment and don’t want to access the equity in your home. However, if you want to pull out equity, a cash-out refinance is the better choice. 

Here’s a quick comparison of refinancing versus home equity loans (HE loans) versus HELOCs:

Cash-out refi	HE loan	HELOC
Fixed or variable rates	Often fixed	Often variable
Borrow up to 80% of home value	Up to 90% of home equity	Up to 85% of home value
15 – 30 year repayment terms	5 – 30 years	10 – 20 years
Loan replaces original mortgage	Second mortgage	Revolving line of credit
Best for new larger loan where you take the difference in cash	Best for large lump-sum expenses	Best for ongoing, flexible expenses

The most significant difference between a home equity loan and a cash-out refinance is how they affect your mortgage. 

• A cash-out refinance replaces your current mortgage with a new loan for a higher amount. 
• A home equity loan or HELOC acts as a second mortgage, leaving your original home loan untouched and adding a separate monthly payment.

In the case of a cash-out refinance, if you’re in the position to extend the terms of your mortgage, there is a possibility your monthly payment will be the same or lower, although this means paying more interest over time.

Erin Kinkade, CFP®

Home equity loan vs. refinance

Both home equity loans and cash-out refinancing provide a lump sum you can use however you’d like. But choosing between the two usually comes down to one question: Do you prefer a separate second loan, or would you rather streamline everything into one loan? 

Home equity loans and cash-out refinance loans have fixed monthly payments (unless you get a cash-out refinance loan with a variable rate). However, a home equity loan would allow you to keep your current mortgage exactly as it is. 

If you go the home equity loan route, you can use a comparison site—LendingTree is our favorite—to compare offers from multiple lenders at once. If you don’t like what you see, you can look into the best cash-out refinance companies next if they fit your needs.

Pros and cons of home equity loan vs. mortgage refinance for cash

Home equity loan pros

• You get a fixed monthly payment and an interest rate that won’t change.
• You can keep your current mortgage.
• It’s good for large projects or one-time expenses like debt consolidation.

Home equity loan cons

• You’ll have two monthly payments to juggle.
• You may pay closing costs similar to a standard mortgage.
• Home equity loan rates might be higher than cash-out refinance rates.

Cash-out refinance pros

• You simplify your home loans into one loan with one payment.
• Refi rates may be lower than home equity loan rates.
• You can spread payments over 15 to 30 years.

Cash-out refinance cons

• You’ll reset your mortgage loan term.
• Closing costs are similar to a standard refinance.
• Interest rates can fluctuate if you choose a variable-rate loan.

Home equity line of credit vs. refinance

Choosing between a HELOC or cash-out refinance comes down to several questions: 

1. Would you prefer to borrow only what you need as you need it (HELOC) or get your total loan amount all at once (refinance)?
2. Would you prefer a variable-rate loan (HELOC) or the option to choose a fixed-rate loan if it makes more sense (refinance)?
3. Would you prefer two loan payments (HELOC) or one (refinance)? 

If you’d prefer to keep your original mortgage intact, a HELOC may be the better fit. Two popular HELOC providers are Figure and Aven: 

• Figure has a 100% digital HELOC with quick approvals and funding in as little as five days. 
• With an AvenCash HELOC, you can borrow from your home as much as you’d like and earn cashback rewards in the process—a unique feature among HELOC lenders. Approval takes as little as 15 minutes.

Pros and cons of home equity loan vs. mortgage refinance for cash

HELOC pros

• You can borrow as needed rather than taking a lump sum.
• You pay interest only on the funds you use.
• You can reuse funds during the draw period as you pay down your balance.

HELOC cons

• Most HELOCs have variable rates that can increase if market rates rise.
• Some lenders charge annual fees or require minimum draws.
• You can’t borrow more than your available line limit.

Cash-out refinance pros

• You get a large amount of cash at closing.
• A fixed-rate loan can help you lock in a low rate.
• You can stretch payments out over 15 to 30 years.

Cash-out refinance cons

• You’ll restart your mortgage from scratch.
• Expect fees similar to getting a new mortgage.
• No access to additional funds unless you refinance again.

How to choose: Cash-out refi vs. home equity loan or HELOC

If…	Consider…
You want a lump for a major project or expense	Home equity loan
You need ongoing access to funds	HELOC
You want to lower your mortgage rate	Cash-out refinance
Your current mortgage has a lower rate, so you want to keep it	Home equity loan or HELOC
You want a single loan payment	Cash-out refinance
You’re concerned about interest rates rising in the future	Home equity loan
You need to borrow more than the amount you’re approved for	HELOC

You want a lump sum for a major project

If you’re funding a large expense, such as home renovations or debt consolidation, a home equity loan could be your best bet. You’ll get a fixed amount of cash upfront, plus predictable monthly payments and a stable interest rate.

Winner

Home equity loan

You need ongoing access to funds

Do you have multiple upcoming expenses or an uncertain timeline? A HELOC could be a better fit. It works much like a credit card: You can borrow as needed during the draw period and pay interest only on what you use.

Winner

HELOC

You want to lower your mortgage rate

If interest rates have dropped since you got your current mortgage, a cash-out refinance can help you lock in a lower rate while accessing your home equity. Just be ready for closing costs, similar to getting a new mortgage.

Winner

Cash-out refinance

Your current mortgage has a low rate

If your mortgage has a lower rate than what’s available now, you may not want to reset your entire loan with a cash-out refinance. Instead, you could apply for a home equity loan or HELOC. This will allow you to keep your original mortgage while accessing the funds you need.

Winner

Home equity loan or HELOC

You want a single loan payment

If you don’t like the thought of having yet another bill to keep up with, you can simplify your finances by rolling your mortgage and equity loan into a single payment with a cash-out refinance. This option replaces your current mortgage with one larger loan, so you have streamlined repayments.

Winner

Cash-out refinance

You’re worried about rising rates

If you’re concerned about rates increasing in the near future, a fixed-rate home equity loan or cash-out refinance could give you peace of mind while you borrow. You’ll have consistent monthly payments and no surprises, unlike a variable-rate HELOC.

Winner

Home equity loan

You need to borrow more than the amount you’re approved for

If you need more than the amount you’re approved for, a HELOC could help you maximize your borrowing power. With a HELOC, you can borrow up to your approved credit limit, repay some or all of the balance, and borrow again as needed—without reapplying for another loan.

For example, suppose you’re approved for a $50,000 HELOC and borrow all $50,000 for home renovations. After paying back $10,000, your available credit goes back up to $10,000. If you then have a $10,000 emergency, you could then borrow this amount again without needing a new loan.

Winner

HELOC

To choose between a cash-out refinance, home equity loan, and HELOC, my clients and I work on identifying the purpose of the loan or refinance and by doing a cost/benefit analysis. The client can make an informed choice based on our results, along with a discussion of the pros and cons.

Erin Kinkade, CFP®

Read More

Ready to explore specific options for one of these solutions? Check out our recommendations for the best cash-out refinance companies, the best HELOCs, and the best home equity loans

FAQ

Should I get a reverse mortgage vs. a home equity loan or HELOC?

Choosing between a reverse mortgage, home equity loan, or HELOC depends on your financial needs, age, and long-term goals:

• Reverse mortgage: Best for homeowners ages 62 and over who need cash flow and don’t want monthly payments. The loan doesn’t need to be repaid until you sell the house or move out, but it reduces your home equity over time.
• Home equity loan: Ideal for lump-sum expenses, such as renovations or debt consolidation. You’ll have fixed monthly payments, and the loan term is clear.
• HELOC: Offers flexibility with a revolving credit line for ongoing expenses. It’s a good option if you don’t need all the money upfront.

Consider reverse mortgages only if you meet the age requirements, plan to stay in your home long-term, and are comfortable with reduced equity. Otherwise, a home equity loan or HELOC may be better for younger borrowers or those who want to preserve equity.

What’s the cheapest way to take equity out of your house?

The cheapest way to access your home’s equity depends on current interest rates, fees, and your financial situation:

• Refinancing can be cost-effective if you qualify for a lower interest rate than your current mortgage. However, you’ll reset the loan term, and closing costs can be high.
• Home equity loan: Fixed rates and fewer upfront costs than a full refinance make it a cheaper option for a one-time expense.
• HELOC: Often the most affordable option for short-term borrowing due to lower initial fees and interest rates that only apply to the amount drawn.

To minimize costs, compare lenders, look for low- or no-closing-cost options, and calculate the total cost over time for each option. Check out the best HELOCs with no closing costs.

What is the easiest way to take equity out of your house—refinance, HELOC, or home equity loan?

The easiest way to access home equity depends on your credit, income, and the amount of equity available:

• HELOC: Generally the easiest due to fewer closing costs and a faster approval process. You can borrow only what you need and pay interest only on the amount used.
• Cash-out refinance: Simplifies payments by combining your mortgage and equity into one new loan. It’s easier if you’re already working with a lender you trust.
• Home equity loan: Straightforward application process, especially if you know the exact amount you need upfront.

If speed and simplicity are priorities, a HELOC is often the best choice, but consider whether variable rates fit your financial situation.