If you have equity in your home — that is, your home is worth more than what you still owe on it (home equity = home value − mortgage balance) — there are three common ways to convert some of that equity into cash. All three are forms of secured debt or a secured agreement: your home is the collateral. This article lays them side by side so you can see how they differ. It does not recommend borrowing against your home; that is a personal decision that depends on your full financial picture.
The three options are a HELOC, a home equity loan, and a cash-out refinance.
HELOC (home equity line of credit). A revolving line of credit secured by your home, similar in feel to a credit card with a limit. It has a draw period (when you can borrow and repay repeatedly) followed by a repayment period (when you pay down the balance). The rate is typically variable, so payments can change over time.
Home equity loan (a second mortgage). A fixed-rate lump sum paid to you at closing, repaid in fixed monthly payments over a set term. You get the full amount up front rather than drawing as needed.
Cash-out refinance. You replace your existing first mortgage with a new, larger one and take the difference in cash. This is not a second loan — it is a brand-new first mortgage with its own rate and term.
A HELOC and a home equity loan are both second mortgages — they sit behind your existing first mortgage and leave your current first-mortgage rate untouched. A cash-out refinance replaces your first mortgage, so it resets you to today’s rate on the entire balance. If your existing mortgage carries a rate well below today’s market, a cash-out refi means giving up that low rate on your whole loan, while a HELOC or home equity loan does not. This “rate lock-in” trade-off is often the deciding factor.
Here is a neutral side-by-side:
| HELOC | Home equity loan | Cash-out refi | |
|---|---|---|---|
| Cash delivery | Draw as needed (line) | Lump sum | Lump sum |
| Rate structure | Usually variable | Fixed | Fixed or adjustable |
| Effect on 1st mortgage | Untouched | Untouched | Replaced |
| Structure | 2nd mortgage | 2nd mortgage | New 1st mortgage |
| Often used for | Ongoing / uncertain costs | One-time known cost | Larger sums / rate reset |
Suppose a home is worth $500,000 and the owner still owes $300,000, so equity is $200,000. With a HELOC or home equity loan, that $300,000 first mortgage — say at a low locked-in rate — keeps its rate; the new borrowing is a separate second loan. With a cash-out refi, the owner might replace the $300,000 loan with a $360,000 loan and take $60,000 in cash — but now the whole $360,000 is at today’s rate. Whether that trade makes sense depends entirely on the rate difference and the owner’s plans. How much any of these lets you borrow is limited by combined loan-to-value (CLTV) — the total of all loans against the home divided by its value.
These are three different tools, not a ranking. A HELOC offers flexibility with a variable rate; a home equity loan offers a fixed lump sum; a cash-out refi consolidates everything into one new first mortgage but resets your rate. Each is secured by your home, which means the home is at risk if payments are not made. The right choice — or the choice to do none of these — depends on your rate, your timeline, and how much certainty you want in your payments. The CFPB publishes neutral guides on all three; comparing offers in writing and reading the terms carefully is the standard advice.