The Different Types of Home Equity Loans: HEL, HELOC, Cash-Out Refi

If you’re looking to borrow against your home’s equity, you have three main options: a home equity loan (HEL), a home equity line of credit (HELOC), or a cash-out refinance. They work differently, so choosing the right one depends on your financial needs.

A HELOC gives you a flexible credit line to borrow as needed, a HEL provides a lump sum with fixed payments, and a cash-out refinance replaces your mortgage with a larger loan. In this guide, we’ll explain how each option works and how to decide which one fits your financial goals.

Table of Contents

1. 3 main types of home equity loans
2. 1. Home equity loans
3. 2. HELOC
4. 3. Cash-out refinance
5. Home equity loan vs. HELOC vs. cash-out refi: How to choose

3 main types of home equity loans

Choosing the right home equity option depends on your financial goals and needs.

A HELOC is a revolving credit line that lets borrowers withdraw funds as needed. It has a draw period (usually five to 10 years) with interest-only payments, followed by a repayment period with a set principal and interest payment. Most HELOCs have variable rates, meaning payments can fluctuate.

A home equity loan (HEL) provides a lump sum, usually with a fixed interest rate. It’s best for one-time expenses, such as home renovations or debt consolidation. Because HELs typically have fixed repayment terms, borrowers know what their monthly payments will be for the life of the loan.

A cash-out refinance replaces your mortgage with a larger loan, giving you the difference in cash. It can offer lower rates than a HEL or HELOC but replaces your current mortgage. This option works well for refinancing your mortgage and accessing some of your home equity.

Here’s a summary of how these types of home equity loans compare. We’ll dig into all three of these in more detail below.

HEL	HELOC	Cash-out refi
Access one lump sum	Request as often as needed	One lump sum
Fixed rates (usually)	Variable rates (usually)	Fixed or variable rates
Borrow up to 80% of home value (incl. current mortgage)	Borrow up to 80% of home value (incl. mortgage)	Borrow up to 80% of home value (incl. refinanced mortgage balance)
Fixed repayment of 5 – 25 years	Fixed repayment of 5 – 30 years	Fixed repayment of 10 – 30 years
Keep your current mortgage	Keep your current mortgage	Replaces your mortgage
Some lenders waive closing costs	Some lenders waive closing costs	Includes closing costs
Doesn’t allow for ongoing access to cash	Get ongoing access to cash	No ongoing access to cash
Doesn’t extend your mortgage term	Doesn’t extend your mortgage term	May extend your mortgage term
Best for one-time expenses (renovations or debt consolidation)	Best for ongoing or unpredictable expenses	Best for lowering mortgage rate while cashing out equity

1. Home equity loans

A home equity loan (HEL) allows homeowners to borrow a lump sum using their home as collateral. The loan amount is based on the equity built in the home, typically up to 80% of the property’s value, including the balance of any mortgages on the home, though some lenders may lend more. 

Borrowers repay the loan in fixed monthly installments over a set term, providing predictable payments. Most HELs feature fixed interest rates, ensuring consistent monthly payments. However, some lenders offer variable-rate options, where the interest rate can fluctuate based on market conditions. 

Regardless of the rate type, borrowers receive a one-time lump sum and begin making fixed monthly payments immediately. These payments continue until the loan is fully repaid. 

Home equity loans often come with various fees, such as:

• Origination fees: Charges for processing the loan application.
• Appraisal costs: Fees for assessing the home’s current market value.
• Title fees: Costs associated with verifying ownership and ensuring the title is clear.

Some lenders may cover these expenses, while others pass them on to the borrower. Also, terms may vary by lender, with some allowing you to access a higher percentage of your equity. It’s essential to review the loan terms to understand what’s available.

For instance: 

• Navy Federal Credit Union offers home equity loans with no closing costs, allowing members to borrow up to 100% of their home equity. This lender provides fixed-rate loans with terms ranging from five to 20 years.
• Spring EQ offers home equity loans with repayment terms ranging from five to 30 years. These loans allow borrowers to access up to 90% of their home equity.

These examples show how loan terms and borrowing limits can vary by lender. Some lenders may provide higher loan-to-value ratios, while others focus on lower fees or specific repayment terms. 

Because of the potential for differences, comparing multiple lenders is essential to finding a loan that fits your financial situation and long-term goals.

Read More

The 17 Pros and Cons of Home Equity Loans 

Who a home equity loan is best for

A home equity loan is ideal for homeowners who need a large, one-time sum for home renovations, debt consolidation, or major purchases. It works best for those who prefer predictable payments and a fixed interest rate.

If this seems like the best option for you, check out our page on the best home equity loans.

2. HELOC

A home equity line of credit (HELOC) is a revolving credit line secured by your home. Unlike a home equity loan, which provides a lump sum, a HELOC allows you to borrow as needed during the draw period. 

The credit limit is based on your home equity—typically up to 80% of your home value, including your mortgage balance. Some lenders may offer higher or lower borrowing limits, so it’s important to compare lenders to find the best fit.

HELOCs typically have variable interest rates, meaning payments can fluctuate as market rates change. Some lenders offer fixed-rate HELOCs, where the interest rate never changes. Others provide hybrid HELOCs, which allow borrowers to switch between fixed and variable rates.

During the five- to 10-year draw period, borrowers can withdraw funds as needed, often making interest-only payments. Repaying the principal is optional during this phase. Once the draw period ends, the five- to 25-year repayment period begins, requiring full principal and interest payments.

HELOCs often come with fees, which vary by lender. These may include:

• Origination fees: Charged for processing the loan request.
• Appraisal fees: Costs for assessing the home’s value.
• Annual fees: Ongoing charges for keeping the credit line open.
• Transaction fees: Possible charges for each withdrawal.

As with home equity loans, some lenders waive these fees, while others pass them on to the borrower. HELOC terms can also differ, with some lenders offering higher borrowing limits or rate-lock options. Because of this variation, it’s important to compare lenders.

For example, FourLeaf Federal Credit Union offers a variable-rate HELOC with a low fixed rate for the first 12 months. This might be ideal for those looking for flexible rates. 

Figure and Aven specialize in fixed-rate HELOCs for the full term length, which provide predictable payments.

Read More

The 10 Pros and Cons of Home Equity Lines of Credit

Who a HELOC is best for

A HELOC is best for homeowners who need ongoing access to funds rather than a lump sum. It’s often used for home renovations, education costs, or emergency expenses.

Since HELOCs usually have variable interest rates, they work best for those comfortable with fluctuating payments. Homeowners who prefer a fixed repayment schedule may find a home equity loan a better fit.

If a fixed-rate or variable-rate HELOC might be the best option for you, see our full list of the best HELOC lenders and rates.

3. Cash-out refinance

A cash-out refinance replaces your mortgage with a larger loan, letting you convert home equity into cash. The new loan pays off your old mortgage, and you get the difference as a lump sum. Unlike a HELOC or HEL, a cash-out refinance does not add a second loan—it replaces your original mortgage.

With this type of loan, you can often borrow up to 80% of your home equity. Plus, it’s available with fixed or variable interest rates, depending on the lender. A fixed rate keeps the payments predictable, while a variable rate may offer lower initial payments but can vary over time. 

Because this is a new mortgage, you may need to pay closing costs and other fees. These often include origination fees, appraisal costs, title insurance, and recording fees. Some lenders offer no-closing-cost refinance options, but these might come with a higher interest rate. 

As with the other options, comparing lenders is critical since the terms can vary. For example, SoFi offers cash-out refinance loans with terms ranging from 10 to 30 years, giving borrowers flexibility in structuring their repayments. It also offers discounted fees to its members, a potential cost savings.

Who a cash-out refinance is best for

A cash-out refinance is best for homeowners who need a large lump sum and are comfortable resetting their mortgage. It’s commonly used for home renovations, education costs, or consolidating high-interest debt.

Since this replaces your first mortgage, it’s best for borrowers planning to stay in their home long enough to benefit from the new loan terms. Those who expect to move soon or who want to avoid extending their repayment period may prefer other options.

Check out our list of the best cash-out refinance lenders if you’re considering this option.

Home equity loan vs. HELOC vs. cash-out refi: How to choose

The best option for borrowing against your home’s equity depends on how you need to access the funds and your repayment preferences.

If you need ongoing access to cash, a HELOC is the best home loan option. Unlike a home equity loan or cash-out refinance, it gives you a revolving credit line, so you can borrow as needed and only pay interest on what you use. 

The decision gets trickier when choosing between a home equity loan and a cash-out refinance: 

• A home equity loan is better for one-time expenses if you want fixed monthly payments and a predictable repayment term. Since it doesn’t touch your current mortgage, it’s a great option if your current interest rate is already low.
• A cash-out refinance, on the other hand, replaces your current mortgage with a larger loan. If you’re already considering refinancing, this option could be a better deal—especially if it lowers your rate while still letting you tap into your equity.

Choosing the right option comes down to what works best for your financial situation. Before 

deciding, consider your loan terms, current mortgage rate, and how much flexibility you need. Running the numbers and comparing offers from multiple lenders can help you make the most of your home’s equity.

In addition to comparing the purpose of the loan and conducting a cost-benefit analysis, I encourage clients to consider what makes them feel most comfortable. 

For example, they may prefer to avoid the uncertainty of a fluctuating interest rate with a HELOC, even if they can afford potential increases. Or they might prioritize the flexibility of a HELOC over the fixed lump sum of a HEL. 

Once we identify the need, costs, and terms, the final step is to determine which option best aligns with their current financial situation, risk tolerance, and mid- to long-term goals—recognizing that the decision isn’t solely about the numbers.

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