Quick answer
- Who it may fit
- Owners wanting staged access to equity while keeping an existing first mortgage.
- Equity & closing costs
- Available credit depends on equity and combined loan-to-value; ask about setup and closing charges.
- Insurance & fees
- HELOC rates are usually variable; annual, inactivity or early-closure fees may apply.
- Key eligibility
- The lender checks credit, income, combined liens and property value.
- Main tradeoff
- Payments can rise after the draw period or with rates; nonpayment risks the home.
Down payment is not total cash to close. Educational guidance pending licensed review.
Sources: CFPB: HELOCs · CFPB: equity loan choices
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HELOC vs. cash-out refinance
Scroll sideways to read the full comparison table.
| Compare | HELOC | Cash-out refinance |
|---|---|---|
| First mortgage | A second lien can keep it in place | Replaces it with a larger mortgage |
| Funds | Draw as needed up to the line limit | Lump sum at closing |
| Rate | Usually variable; payments can change | Fixed-rate structures often available; compare whole-loan rate |
| Repayment | Payment may rise after draw period ends | New term and amortization may change total interest |
| Fees & total cost | Check opening, annual and closing fees | Compare closing costs and payment on the entire new mortgage |
| Collateral risk | Home secures the line; nonpayment can lead to foreclosure | Home secures the new loan; nonpayment can lead to foreclosure |
Program terms vary by borrower and lender. Down payment is not total cash to close. Educational guidance pending licensed review.
Sources: CFPB: HELOCs · CFPB: equity loan choices
A home equity line of credit is a revolving second lien: you draw what you need during a draw period, then repay over a set term. A closed-end home equity loan instead advances a lump sum at a fixed rate. Both sit behind your existing first mortgage, so a low first-mortgage rate stays untouched.
- Owners with a first-mortgage rate worth protecting
- Owners funding renovations in stages rather than all at once
- Owners who want standby access to funds rather than a lump sum
- The existing first mortgage stays in place
- A line of credit charges interest only on what has actually been drawn
- Closing costs are often lower than a full first-mortgage refinance
- HELOC rates are typically variable, so the payment can move
- Payments usually rise when the draw period ends and repayment begins
- The line is secured by your home
- Some lines carry annual, inactivity or early-closure fees — read the terms
These are the factors an underwriter typically reviews. They are not a checklist of requirements, and meeting them does not guarantee eligibility or approval.
- Sufficient equity after accounting for the existing first mortgage
- Credit and income review
- Combined loan-to-value within the lender's limits
- An acceptable property and valuation
All loans are subject to credit, income, property and underwriting approval. Nothing on this page is a loan offer, an approval, a rate lock or a commitment to lend. Programs, rates and terms are subject to change without notice.