Cash-out refinance vs. HELOC: Which one works best for you?
Wondering how can you choose between a cash-out refinance and home equity line of credit (HELOC)? We’ll thoroughly compare the two options so you can determine the right choice for you.
Tapping into your home’s equity is a smart way to fund major expenses like home renovations or debt consolidation.
Two of the most common options for accessing equity are a cash-out refinance and home equity line of credit (HELOC).
How do you choose between the two options? In this article, we’ll thoroughly compare a cash-out refinance vs HELOC so you can determine the right choice for you.
A HELOC from the comfort of your own home: Apply using Figure’s 100% online application.
What is a cash-out refinance?
A cash-out refinance is a type of mortgage refinancing where the homeowner applies for a new mortgage that is larger than their current loan balance.
The lender pays off the existing mortgage and provides the homeowner with the difference in cash.
Now, the homeowner has a new loan with new terms, including an updated mortgage interest rate and repayment period.
To qualify for a cash-out refinance, lenders will look at the following:
Home equity (most lenders allow borrowing up to 80% of the home’s value)
Credit score
Debt-to-income ratio (DTI)
Income and employment
A cash-out refinance will have lower interest rates than personal loans or credit cards, but homeowners have to give up their current mortgage rate.4: Navigates to numbered disclaimer
What is a home equity line of credit (HELOC)?
A HELOC is a flexible way to access funds by borrowing against the equity you’ve built in your home.
A Figure HELOC functions similarly to a cash-out refinance but offers greater flexibility. It can be used to pay off and replace your existing mortgage, consolidate debt, or cover major expenses—all with a fixed interest rate and one straightforward monthly payment.1: Navigates to numbered disclaimer
Figure’s HELOC gives you the full amount upfront with a fixed interest rate and you can borrow again once part of the principal is repaid.
To qualify, lenders will examine the amount of equity a homeowner has built in the home, their credit score, DTI, income, and employment.
Lenders typically allow borrowing up to 85% of the home’s value minus what you owe.
Similarities between cash-out refinance and HELOCs
While a cash-out refinance and HELOC function differently, they share several core similarities that make them popular options for homeowners seeking extra cash.
Let’s look at the major similarities between a cash-out refinance and HELOC.
Can replace your existing mortgage
Both cash-out refinance and Figure’s HELOC can be used to pay off and replace your existing mortgage. This gives you access to your home equity while combining it into one new, fixed-rate monthly payment.1: Navigates to numbered disclaimer
Use of home equity
Both options allow homeowners to borrow against the equity they’ve built in their property.
The amount you can access depends on your home’s current market value and your remaining mortgage balance.
Lower interest rates
Both a HELOC and cash-out refi use your home as collateral, allowing lenders to offer lower interest rates than unsecured financing options like personal loans or credit cards.
Fixed interest rates for predictable payments
Both a cash-out refinance and Figure HELOC offer fixed interest rates, giving you the stability of predictable monthly payments.1: Navigates to numbered disclaimer
While cash-out refinances lock in a single rate for the full loan, Figure HELOCs apply a fixed rate to the full amount at origination—and any future draws receive their own fixed rate.
Use of funds
Both home equity options allow homeowners to use the funds however they choose.
Common uses include home renovations, high-interest debt consolidation, education expenses, or medical bills.
Qualification requirements
Lenders evaluate similar factors for both options, including credit score, DTI, and home equity amounts.
The difference between HELOC and cash-out refinance
While understanding the similarities between a HELOC vs cash-out refi is helpful, knowing the differences will help you narrow down the better fit for your financial needs.
How funds are received
A cash-out refinance gives you a one-time lump-sum payment at closing, based on the difference between your old mortgage and the new, larger loan.
A Figure HELOC also provides a lump sum at closing—your full approved amount is funded right away—but unlike a cash-out refi, it stays open as a revolving line of credit. As you repay what you’ve borrowed, you can draw funds again during the draw period, giving you added flexibility over time.
Loan terms
Cash-out refinance loan terms typically range from 15 to 30 years. Repayment begins immediately, with both principal and interest included in your monthly mortgage payment. Because it’s a one-time lump sum, you won’t be able to access additional funds unless you refinance again.
Figure HELOCs also have terms between 5 and 30 years5: Navigates to numbered disclaimer, and like a cash-out refinance, you begin repaying principal and interest right away. However, a key difference is the draw period. With Figure, you can continue to access funds as needed during the draw period—typically 2 to 5 years, depending on your loan term—giving you added flexibility without needing another loan or refinance.5: Navigates to numbered disclaimer
Fees and closing costs
Closing costs for a cash-out refinance typically total 2%-5% of the loan amount.
HELOCs typically have lower upfront costs compared to a cash-out refi.
Best use cases
A cash-out refinance is best for those who need a large sum upfront, and those who would benefit from refinancing their mortgage to get a new rate and terms.
HELOCs are ideal for those who need more flexibility with their funds, and prefer to borrow as needed, and may not want to replace their current mortgage’s rate and terms.
Ongoing access
A cash-out refinance is a closed-end loan—you borrow once, repay over time, and can’t access additional funds without refinancing again.
A Figure HELOC, on the other hand, is a revolving line of credit. As you repay the balance, your available credit replenishes, allowing you to borrow again during the draw period without restarting the loan process.
Pros and cons of a HELOC vs cash-out refinance
A cash-out refinance vs HELOC are both helpful options to compare for accessing home equity, but they each cater to borrowers with specific needs.
Let’s look at the pros and cons of HELOC vs refinance loans to help you narrow down what’s best for your situation.
HELOCs
Pros
Flexible borrowing with the ability to redraw funds during the draw period as you repay
Fixed interest rates with predictable monthly payments (with Figure HELOCs)1: Navigates to numbered disclaimer
Lower upfront costs and faster funding compared to traditional refis
Option to pay off and replace your existing mortgage or keep it in place
Cons
May have variable interest rates, depending on other lenders
Risk of overspending due to revolving credit structure
Risk of foreclosure as a HELOC is secured by your home
Cash-out refinance
Pros
Predictable monthly payments with a fixed rate
Potential for a lower mortgage rate
Large lump sum for major expenses
Single monthly payment
Cons
Higher closing costs
More interest paid over time if you extend your loan term
Requires a full mortgage refinance that may change current rate and terms
Risk of foreclosure if you fail to make payments
Carefully review the pros and cons of each loan type and compare them to your financial needs and goals.
An alternative: Home equity loans
Not sure if a HELOC or cash-out refi is right for you? Homeowners do have a third option: a home equity loan.
Home equity loans are taken out in addition to your existing mortgage. It is a fixed-rate loan that provides borrowers with an upfront lump sum they can use for any purpose they choose.
Differences between home equity loans and HELOCs
Homeowners may have difficulty choosing between a HELOC vs home equity loan vs cash-out refinance.
Let’s briefly examine the differences between the three options below.
Payout structure
Home equity loan: Upfront lump sum
Figure HELOC: Upfront lump sum with a revolving line of credit
Cash-out refinance: Upfront lump sum
Interest rate
Home equity loan: Fixed
Figure HELOC: Fixed1: Navigates to numbered disclaimer
Cash-out refinance: Fixed or adjustable
Repayment
Home equity loan: Fixed monthly payments including principal and interest
Figure HELOC: Draw funds and repay principal and interest throughout the loan term
Cash-out refinance: Fixed monthly mortgage payments
Loan term
Home equity loan: 5-30 years
Figure HELOC: 5-30 years (potentially a new mortgage)5: Navigates to numbered disclaimer
Cash-out refinance: 15-30 years (new mortgage)
Best for
Home equity loan: Large, one-time expenses
Figure HELOC: Flexible, ongoing expenses, ability to refinance into new mortgage terms
Cash-out refinance: Large, upfront expenses and refinancing into new mortgage terms
Flexibility
Home equity loan: Limited flexibility, one-time borrowing
Figure HELOC: High flexibility, borrow and repay multiple times during draw period
Cash-out refinance: Limited flexibility, entire loan is disbursed upfront
HELOCs are the simplest, most flexible option of the three—and a HELOC through Figure’s platform incorporates the most beneficial elements of the other options.
A HELOC through Figure’s platform provides a fixed rate for your initial draw, and your full amount drawn at origination1: Navigates to numbered disclaimer.
Our fixed-rate option provides more stability than traditional HELOCs, while maintaining the traditional flexibility to borrow as needed during the draw period.
Confused about what you need or whether you qualify? Check out Figure’s Home Equity Line FAQs.
How do you choose between a home equity line of credit vs cash-out refinance?
Deciding between a HELOC or cash-out refinance depends on your financial situation, how you intend to use the funds, and your long-term goals.
Let’s break down some of the most important factors in your decision.
Are you happy with your current mortgage?
If you're looking to lower your rate, adjust your loan terms, or tap into your home equity, you have two main options.
A cash-out refinance replaces your current mortgage with a new, larger loan—giving you a lump sum at closing.
A Figure HELOC offers a similar benefit: it can also pay off and replace your existing mortgage, while giving you added flexibility to draw more funds over time as you repay. Both options provide fixed interest rates.1: Navigates to numbered disclaimer
How quickly do you need to access your funds?
HELOCs have a much faster approval and funding process than a cash-out refinance. With Figure, you can get approved in minutes, and initiate funding in as few as five days2: Navigates to numbered disclaimer.
A cash-out refinance can take several weeks since it involves a full mortgage refinance.
How long do you plan to stay in your home?
A cash-out refinance can be a smart option if you plan to stay in your home long enough to recoup the higher closing costs and potential interest paid over time.
A Figure HELOC offers more flexibility—it can be used to pay off and replace your existing mortgage, or you can choose to keep your current mortgage in place and take the HELOC as a junior lien. Either way, Figure’s HELOC typically comes with lower upfront costs and a faster, fully digital application process.
To make the most informed decision, consider using our HELOC vs cash-out refinance calculator to compare your savings with each option.
Access the cash you need with Figure
If you’re seeking a fast, flexible way to tap into your home equity using a fully digital platform, Figure can help.
We offer a 100% online application, with approval in as fast as five minutes and funding in as few as five business days2: Navigates to numbered disclaimer.
Borrowers can access up to $750,000 depending on home value, equity, and credit profile3: Navigates to numbered disclaimer.
Get the cash you need—apply today!
Frequently asked questions about a cash-out refinance vs HELOC
Can I use a cash-out refinance to pay off my HELOC?
Yes, you can use a cash-out refinance to pay off your HELOC by rolling your HELOC balance into a new mortgage.
However, keep in mind that a cash-out refinance replaces your entire mortgage, so consider whether the new loan terms and closing costs align with your financial goals.
When do I need to repay a cash-out refinance or HELOC?
A cash-out refinance is repaid through fixed monthly mortgage payments over the loan term, typically 15-30 years. Since it replaces your existing mortgage, repayment begins immediately.
With Figure’s HELOC, you can choose a repayment term of 5, 10, 15, or 30 years. Once you select your term, you have that entire period to pay off your HELOC. Also, additional draws can be made during the draw period.5: Navigates to numbered disclaimer
What are the tax implications of accessing your home’s equity?
The interest paid on a HELOC or cash-out refinance may be tax-deductible, but only if the funds are used for home improvements that qualify under IRS guidelines.
If you use the money for other purposes—such as paying off debt, funding education, or covering personal expenses—the interest is not deductible.
Consult a tax professional to determine how accessing your home’s equity could impact your specific tax situation.
Is it better to refinance or get a HELOC?
A Figure HELOC is ideal for homeowners who want both immediate funds and long-term flexibility. You receive the full approved amount upfront at closing, but the line stays open—so as you repay, you can draw again during the draw period1: Navigates to numbered disclaimer.
A cash-out refinance provides a one-time lump sum with a fixed rate but doesn’t allow future draws and often comes with higher closing costs and a longer timeline.
If you’re investing in real estate, consider how a cash-out refinance or HELOC for investment property affects your financing strategy, depending on the amount of cash and level of flexibility you need.
