Tapping Into Your Home’s Value
If you’re a homeowner with built-up equity, you have options when it comes to turning that value into usable cash. Whether you’re renovating, consolidating debt, or paying for a major expense, three products tend to stand out:
- Cash-out refinance
- Home equity loan (HELOAN)
- Home equity line of credit (HELOC)
Each lets you access your equity—but how they do it, what they cost, and how they impact your current mortgage are very different.
What Is a Cash-Out Refinance?
A cash out refinance replaces your existing mortgage entirely. You take out a new, larger mortgage that pays off your current loan and provides the difference to you in cash.
Cash out refinance pros and cons to consider include:
Pros
- Typically lower interest rates than home equity loans or HELOCs
- Simplifies payments by rolling debt into one loan
- Opportunity to improve your mortgage terms
Cons:
- Higher closing costs (2–5% of the loan amount)
- Could restart or extend your mortgage term
- May require PMI if equity drops below 20%
Best for: Homeowners looking to refinance into a better mortgage rate while also needing funds for large expenses.
What Is a Home Equity Loan?
A home equity loan vs HELOC decision often comes down to certainty versus flexibility. A home equity loan is a second mortgage. You get a lump sum and repay it over a fixed term—usually between 10 and 30 years—with a consistent monthly payment and interest rate.
Pros:
- Predictable payments with fixed rates
- Keeps your existing mortgage untouched
- Good for large, one-time expenses
Cons:
- Typically higher rates than a cash out refinance
- Requires managing two separate mortgage payments
- Less flexibility if your needs change
Best for: Homeowners who want stability and know the exact amount they need.
What Is a HELOC?
In the home equity loan vs cash out refinance conversation, many homeowners overlook the flexibility of a HELOC. This option typically comes with a variable interest rate and a draw period of up to 10 years, followed by a repayment period. At Revix, we now also offer fixed-rate HELOCs, giving you the option of predictable payments without the uncertainty of rate changes.
Pros:
- Flexibility to borrow only what you need
- Interest-only payments during the draw period
- Reusable credit line without reapplying
Cons:
- Variable rates can lead to payment fluctuations
- Potential for overspending without discipline
- Payments increase after the draw period ends
Best for: Ongoing or uncertain expenses like phased renovations or education costs.
Which is Better: HELOC or Home Equity Loan?
The question of selecting either a HELOC or home equity loan depends entirely on your specific situation.
Choose a HELOC if:
- Your expenses will be spread out over time
- You value flexibility
- You’re comfortable with potentially variable payments
Choose a Home Equity Loan if:
- You need a specific amount upfront
- You prefer fixed, predictable payments
- You have a single large expense
Side-by-Side Comparison
| Feature | Cash-Out Refinance | Home Equity Loan | HELOC |
| Replaces Existing Mortgage | Yes | No | No |
| Adds Second Loan | No | Yes | Yes |
| Interest Rate Type | Fixed or adjustable | Fixed | Variable |
| Loan Amount | Lump sum | Lump sum | As needed |
| Repayment Term | Up to 30 years | 10–30 years | Draw period + repayment (up to 30 years) |
| Monthly Payments | One payment | Second payment | Interest-only (draw), then full payments |
| Best For | Refi + lump sum | Fixed sum with stable terms | Flexible borrowing needs |
Making the Right Choice For Your Financial Future
When comparing a home equity loan vs HELOC vs cash out refinance, consider these key factors:
- How much money do you need?
- Do you need it all at once or over time?
- How long do you plan to stay in your home?
- Are current mortgage rates favorable compared to your existing rate?
- How comfortable are you with payment variability?
Understanding Your Equity & Borrowing Power
Before deciding how to access home equity, you need to know how much is available to you. Most lenders allow borrowing up to 80% of your home’s value, minus what you currently owe.
Here’s a simple calculation:
- Home Value × 0.80 = Maximum Allowable Loan
- Maximum Allowable Loan − Current Mortgage Balance = Available Equity
For example, if your home is worth $500,000 and you owe $200,000:
- $500,000 × 0.80 = $400,000
- $400,000 − $200,000 = $200,000 available equity
Home equity = Home value – What you owe
In some states, you may be able to borrow up to 90% of your home’s value with a HELOAN or HELOC, depending on the lender and your credit profile. However, most lenders still use an 80% benchmark as a general rule.
Are There Tax Benefits?
In some cases, yes. The interest on home equity loans, HELOCs, and cash-out refinances may be tax-deductible if the funds are used to buy, build, or substantially improve the home that secures the loan. This applies to loans taken after Dec. 15, 2017.
For a full breakdown, visit our article: Are Home Equity Loans Tax Deductible?
Real World Example: Using Equity Strategically
Samantha, a homeowner in Austin, used a Revix HELOC to fund a three-phase kitchen and bathroom remodel. Because she didn’t need the full budget at once, the HELOC allowed her to borrow in stages, saving on interest and avoiding over-borrowing.
The right loan depends on your financial goals:
- Want to refinance your mortgage and get cash? → Cash-Out Refinance
- Know exactly how much you need and want a second, stable loan? → Home Equity Loan
- Need flexibility and phased access to funds? → HELOC
Whichever you choose, make sure the payments fit your budget—and that you’re using your equity to strengthen your financial future, not overextend it.
🡪 Compare HELOAN and HELOC Options
🡪 What’s the Difference Between a HELOC and Cash-Out Refinance?
🡪 Talk to a Revix Advisor Today
Frequently Asked Questions (FAQs)
Want to go deeper? Check out these related posts:
- Cash-Out Refinance: What It Is and When to Consider One
- Pros and Cons of a Cash-Out Refinance
- HELOC vs HELOAN: What’s the Difference?
1. What’s the difference between a home equity loan and a cash-out refinance?
The main difference comes down to structure. A cash out refinance completely replaces your existing mortgage with a new, larger loan. A home equity loan keeps your current mortgage intact and adds a second loan alongside it. One changes your primary mortgage; the other supplements it.
2. Is a cash-out refinance cheaper than a home equity loan?
It often can be. Cash out refinance options typically feature lower interest rates compared to home equity products. However, they also come with higher closing costs (2-5% of the loan amount). Your break-even point depends on how long you plan to stay in your home and how much you’re borrowing.
3. Can I get a home equity loan or cash-out refi if I have less than 20% equity?
Most lenders require you to maintain at least 15-20% equity after accessing your funds. However, eligibility requirements vary between lenders, and some specialized programs might offer more flexibility. If you’re close to the threshold, it’s worth shopping around.
4. How much equity do I need to qualify?
As a general guideline, you’ll need at least 20% equity to qualify for a cash out refinance, and between 15-20% for a home equity loan or HELOC. This ensures you maintain sufficient ownership stake in your property after borrowing.
5. Will these loans affect my credit score?
Yes. As with any major financial product, applying for and carrying new debt will impact your credit temporarily. The initial application may cause a small dip due to the hard inquiry, while responsible management of the new account can potentially strengthen your credit profile over time.
