Cash-out refinance vs. HELOC: What's a Better option?

Building equity on your home is one of the big perks of owning property. When you need extra cash for a kitchen remodel or college tuition, that equity becomes a lifeline.

Cash-out refinances and home equity lines of credit (HELOCs) are two of the most common ways to tap into your equity, but they follow different playbooks. A cash-out refinance replaces your mortgage and gives you a lump sum of cash, whereas HELOCs offer flexible access to your funds.

Each approach has distinct benefits, but figuring which option is the best for you and your goals can be difficult. Thankfully, you can get pre-approved in as little as 3 minutes with Better, and you’ll see your options laid out so you – along with your loan consultant – can work together to figure out which option is best for you.

But before you hit “Apply,” let’s explore how cash-out refinances vs. HELOCs work and investigate their use cases so you can make an informed decision.

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What is a cash-out refinance?

A cash-out refinance (or refi) swaps your current mortgage loan for a bigger one, letting you pocket the difference between the new and original loans — often up to 80% of your home’s equity.

Common uses include:

— Major renovations
— Paying off high-interest debt
— College tuition
— Emergency savings

Example:
If your home is worth $400,000 and you owe $200,000, you might refinance for $250,000. You’d use $200K to pay off your old loan, and walk away with $50K in cash (minus closing costs, which can often be rolled in). You end up with a new mortgage, ideally with a better rate.

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What is a HELOC?

A HELOC is a second mortgage that creates a revolving line of credit secured by your home. Many lenders let you borrow up to 85% of your home’s value, minus what you still owe.

Unlike a cash-out refi, a HELOC functions like a credit card: borrow what you need, pay it back, borrow again — all during a “draw period” (typically 5–10 years).

With Better, you can borrow up to 90% of your home’s equity (up to $500,000¹) and get your funds in as little as 7 days.²

HELOCs are ideal for ongoing expenses with unclear costs — like a multi-phase home remodel.

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Pros and cons of cash-out refinances and HELOCs

Cash-out refinance

Pros:

— Fixed rate = predictable monthly payments
— Lower rates than personal loans or credit cards
— May allow refinancing into a lower rate
— Large lump sum, great for big expenses
— Single mortgage to manage

Cons:

— Higher closing costs
— Resets mortgage term (could mean more interest long-term)
— You pay interest on the full amount, even if unused
— Missed payments can lead to foreclosure

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HELOC

Pros:

— Keeps original mortgage and rate
— Only pay interest on what you use
— Reusable credit line during draw period
— Often interest-only payments at first
— Lower or no upfront costs

Cons:

— Variable rates = potential payment increases
— Two loans = more complexity
— Full repayment kicks in after draw period ends
— Also puts your home at risk if you can’t repay

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Cash-out refinances vs. HELOCs: Side-by-side

Both options:

— Let you access home equity
— Require sufficient equity, strong credit, and stable income
— Use your home as collateral (better rates, but foreclosure risk)
— Might offer tax-deductible interest (check with a tax advisor)

Key differences:

Feature	Cash-out Refinance	HELOC
Mortgage structure	Replaces original mortgage	Adds a second mortgage
Payment type	Fixed interest rate	Usually variable
Access to funds	Lump sum at closing	Draw as needed
Loan structure	One loan	Two separate loans
Reuse funds	No	Yes, during draw period
Refi term impact	Resets term	Original mortgage stays intact
Timeline	Often 30–60 days	7 days (with Better)

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Which is better: HELOC or refinance?

It depends on your needs:

— Love your current mortgage rate? HELOC keeps it intact.
— Need a large lump sum? Go with a cash-out refinance.
— Want flexibility for uncertain costs? HELOC is better.
— Need money fast? Better’s HELOC can fund in as little as 7 days.

Use our HELOC vs. refinance calculator to compare options side-by-side.

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Access your equity the Better way

Both cash-out refinances and HELOCs let you unlock the power of your home’s equity — whether you need stability or flexibility.

Better makes it easy to:

— Apply 100% online
— Get approved in 3 minutes
— Receive personalized loan recommendations

How it works:
Answer a few questions about your home and goals. Our tech compares refinance and HELOC options and shows what’s best for you.

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¹ $50,000–$500,000 loan amount at up to 90% of your property’s value. Maximum LTV dependent on borrower eligibility. ² Assumes eligibility for Automated Valuation Model (AVM), loan amount <$400K, required documents uploaded within 24 hours, notary availability, and earliest close date scheduled. Times may vary if appraisal is required.