Last updated: November 2025
Quick Answer
If you’re tapping into home equity after a rate cut, a cash-out refinance offers predictable fixed payments and replaces your existing mortgage, while a HELOC provides flexible, interest-only borrowing with a variable rate. The better option depends on your current rate, cash needs, and risk tolerance.
Learn how to leverage your equity with GO Mortgage.Understanding your options: Refinance vs. HELOC
With mortgage rates trending lower, homeowners are reevaluating how to access their home equity. Two popular options—cash-out refinancing and home equity lines of credit (HELOCs)—offer different benefits, costs, and payment structures.
- A cash-out refinance replaces your current mortgage with a new, larger one. You get the difference in cash, and the new loan often has a fixed rate
- A HELOC is a second mortgage that allows you to borrow against your equity as needed, typically with a variable rate and interest-only payments during the draw period
Both options can be used for home improvements, debt consolidation, or major expenses. But the best fit depends on how you want to use your equity—and how long you plan to stay in your home.
How lower rates change the decision
Rate cuts affect the refinance and HELOC options differently:
- Cash-out refinance becomes more attractive when current rates are lower than your existing mortgage rate. You get cash and a reduced monthly payment
- HELOCs also benefit from rate cuts, especially early in the draw period, but remain variable and could rise later
Before the rate drop:
- Refinance: 7.25%
- HELOC: 8.25% variable
After the rate drop:
- Refinance: 6.00%
- HELOC: 7.00% variable
If your current mortgage is under 4.00%, a HELOC may allow you to keep that rate while borrowing separately. But if your current rate is above market, refinancing could improve both your cash access and loan terms.
Compare the costs side by side
| Feature | Cash-Out Refinance | HELOC |
|---|---|---|
| Interest rate type | Fixed | Variable |
| Affects the primary mortgage? | Yes, replaces it | No, adds second loan |
| Payment structure | Full amortization | Interest-only during draw period |
| Typical use cases | Debt payoff, large renovations | Ongoing expenses, flexible borrowing |
| Closing costs | 2–5% of loan amount | Often lower, but varies by lender |
| Risk of rising rates | Low | High (variable rate tied to index) |
| Tax-deductible interest | Possible if used for home improvements | Same (if used on qualified property) |
When a refinance makes more sense
Choose a cash-out refinance if:
- Your current mortgage rate is higher than the new rate
- You want one fixed monthly payment
- You’re consolidating high-interest debt
- You plan to stay in your home for at least five years
- You prefer a predictable payoff structure
This option can reduce total interest paid while simplifying your mortgage situation. It’s especially helpful if your original loan was taken during a period of higher interest rates.
When a HELOC is the better fit
A HELOC may be right if:
- You already have a low-rate primary mortgage
- You only need to borrow occasionally
- You want interest-only payments initially
- You’re funding staged projects or fluctuating expenses
- You plan to repay quickly and want payment flexibility
HELOCs allow you to access funds on demand and only pay interest on what you use. They’re best for short-term borrowing or when you expect to repay principal early.
Key questions to guide your decision
Ask these questions to determine the right fit:
- What is my current mortgage rate compared to today’s refinance rate?
- How much equity do I want to access?
- Do I need all the funds at once, or can I spread them out over time?
- How long do I plan to stay in the home?
- Can I handle potential interest rate increases on a HELOC?
- Do I prefer fixed or flexible monthly payments?
These answers help you align your home equity strategy with your risk tolerance and financial goals.
Choose the equity option that supports your strategy
Lower rates have expanded homeowners’ access to equity. But deciding between a refinance and a HELOC depends on more than just market rates. Consider how much cash you need, for how long, and whether you want stable payments or flexibility.
- Refinance for long-term savings and mortgage simplification
- HELOC for short-term access and flexible borrowing
Need help comparing your options?
Start with GO Mortgage to find out which home equity strategy aligns with your rate, goals, and budget.
FAQ: Refinance or HELOC?
A: In the short term, HELOCs may have lower upfront costs and interest-only payments. However, their variable rate may increase over time, making them more expensive in the long term.
A: Yes. A HELOC is a second loan and doesn’t replace your first mortgage, which is ideal if your current rate is low.
A: A cash-out refinance reduces your equity by the amount you borrow, just like a HELOC. However, the loan is structured differently and affects your entire mortgage.
A: Yes, but for tax-deductible interest, the funds must be used on improvements to the property securing the loan.
A: A higher credit score can secure a lower rate for either a HELOC or a refinance. Borrowers with scores under 680 may face higher rates or tighter limits on available equity.
A: If you plan to move within a few years, a HELOC may be better because setup costs are lower and you’ll only pay interest on what you borrow. Refinancing often makes more sense when you’ll stay long enough to recoup closing costs.
A: Lenders typically require at least 15%–20% equity for a HELOC or cash-out refinance. Maximum loan-to-value (LTV) ratios vary.