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HELOC vs Cash-Out Refinance: What's the Difference

How a HELOC differs from a cash-out refinance, using CFPB junior-lien and home-equity definitions. Educational comparison, not a product recommendation.

Published: 2026-09-14

Key takeaways

  • A cash-out refinance replaces the first mortgage with a larger first mortgage and pays you the leftover cash after payoff and costs. A HELOC is usually a junior lien that leaves the first mortgage in place.
  • The CFPB says a HELOC is a common open-end second mortgage: you can draw, repay, and often draw again up to a limit. A home equity loan is typically a closed-end lump sum with a fixed rate.
  • CFPB research treating cash-out as a refinance more than 5 percent larger than the prior liens notes that home equity is a major household asset. The same paper warns that moving unsecured debt onto the house raises foreclosure risk.
  • The CFPB's second-mortgage explainer says junior liens often carry higher interest rates than first mortgages because they are paid after the first lien if the home is sold in distress.

Published: 2026-09-14

Both a HELOC and a cash-out refinance turn home equity into usable funds. They do it with different liens, different rate structures, and different ways the first mortgage is treated.

This page uses the CFPB's own product definitions. It is not advice to tap equity, consolidate debt, or replace a first mortgage.

What is a cash-out refinance?

A cash-out refinance is a new first mortgage larger than the one it replaces. You use part of the proceeds to pay off the old loan and closing costs. You take the rest in cash.

The CFPB's older-Americans equity guide says the same thing in consumer language: you take out a larger mortgage, pay off the current mortgage, and take the rest in cash. The guide notes the new loan may last longer, the payment may rise because the balance is larger, and the rate and terms all change.

CFPB Office of Research work in January 2025 identifies cash-out refinances in the National Mortgage Database when the new loan plus related junior liens is more than 5 percent larger than the preceding loans. That is a research cutoff, not a lender's product name. Fannie Mae and Freddie Mac use their own cash-out definitions on salable files.

What is a HELOC, and how is it different from a home equity loan?

The CFPB treats HELOCs and home equity loans as common second mortgages. A second mortgage is paid after the first lien if the home is sold to satisfy debt. The bureau says that junior position is one reason second mortgages often carry higher interest rates than first mortgages.

A HELOC is typically open-end. You can draw up to a limit, repay, and often draw again during a draw period. A home equity loan is typically closed-end: one lump sum, usually a fixed rate, no redraw. The CFPB says equity is current value minus existing mortgage debt.

If you cannot repay, the CFPB is blunt: the lender could foreclose because the house is collateral. That sentence applies to HELOCs, home equity loans, and cash-out refinances. The product label does not remove the lien.

How do the two structures compare?

FeatureCash-out refinanceHELOC or home equity loan
What happens to the first mortgageReplaced by a new, larger first lien.Usually left in place. The new loan is often a second lien.
How you receive fundsLump sum at closing after payoff and costs.HELOC: revolving draws. Home equity loan: one lump sum.
Typical rate shapeNew first-mortgage rate on the full balance.Often a variable HELOC rate, or a fixed home-equity rate, on the second lien only.
Closing-cost patternFull refinance costs on the new first lien.Often lower upfront cost than replacing the first lien, still not free.
Main structural riskYou reprice the entire balance and may restart the term.You add a junior lien. The CFPB says distress sales pay the first lien first.

The CFPB equity guide notes that none of these options lets you convert 100 percent of equity to cash. Lenders typically require leftover equity, often described in that guide as about 10 to 20 percent of value. That is a consumer-education range, not a promise any lender will fund to that line.

What does the CFPB say about using equity to pay other debts?

The bureau's second-mortgage tip says you are not really paying the old debts off. You are taking one loan to repay another, now secured by the house. "The risk is that if you can't repay your home equity loan, you could lose your home."

The January 2025 cash-out paper makes the same point on first-lien cash-out: converting credit-card or auto balances into mortgage debt can lower the interest rate you see and still raise foreclosure risk. Default on an unsecured card does not, by itself, put the house on the courthouse steps.

Compare cash to close and the new payment in the closing cost calculator and the mortgage payment calculator. The refinance guide covers break-even and the three-day rescission right that also applies to many HELOCs.

Rate note: second-lien pricing and cash-out first-lien pricing are different markets. Neither figure on this page is a quote, a lock, or a guaranteed APR.

Disclaimer: this guide is for general education. HomeMortgageOnline is not a lender, broker, or loan originator. It does not take applications, lock rates, or give financial advice. Real offers vary by credit, down payment, loan type, points, fees, and market conditions.

Sources

  1. Consumer Financial Protection Bureau, What is a second mortgage loan or junior-lien? - https://www.consumerfinance.gov/ask-cfpb/what-is-a-second-mortgage-loan-or-junior-lien-en-105/
  2. Consumer Financial Protection Bureau, What is a home equity loan? - https://www.consumerfinance.gov/ask-cfpb/what-is-a-home-equity-loan-en-106/
  3. Consumer Financial Protection Bureau, Older Americans Housing Guide: Using home equity to meet financial needs - https://files.consumerfinance.gov/f/documents/cfpb_jith-using-home-equity-guide.pdf
  4. Consumer Financial Protection Bureau, Cash-Out Refinances and Paydown Behavior of Non-mortgage Debt Balances (January 2025) - https://files.consumerfinance.gov/f/documents/cfpb_cash-out-refinances-and-paydown-behavior-of-non-mortgage-debt-balances_2025-01.pdf

Frequently asked questions

What is the difference between a HELOC and a cash-out refinance?

A cash-out refinance replaces your first mortgage with a larger first mortgage and pays you the leftover cash. A HELOC is usually a revolving second mortgage that leaves the first loan in place. The CFPB says junior liens are paid after the first lien in a distress sale. Neither product is a recommendation.

Is a HELOC the same as a home equity loan?

No. The CFPB describes a HELOC as an open-end second mortgage you can draw, repay, and often redraw. A home equity loan is typically a closed-end lump sum, usually at a fixed rate. Both use the house as collateral. Failure to repay can put the home at risk.

Does a cash-out refinance leave my current rate in place?

No. The CFPB equity guide says you replace the current mortgage, so the rate, payment, and term all change. You reprice the entire balance, not only the cash you take out. Compare the new APR and remaining term on a written Loan Estimate.

Can I use home equity to pay off credit cards?

Some borrowers do. The CFPB says you are swapping one debt for another that is secured by the house. The January 2025 bureau paper notes that this can raise foreclosure risk even when the interest rate looks lower. This site does not advise you to consolidate.

How much equity do I need to leave in the home?

The CFPB equity guide says none of these products converts 100 percent of equity to cash, and lenders typically require leftover equity often described as about 10 to 20 percent of value. That is education, not a lender overlay or an approval. Ask each lender for its written limit.