HELOC, home equity loan or cash-out refinance?

HELOC: flexible access

A home equity line of credit lets the homeowner borrow, repay and potentially borrow again during a defined draw period up to the available limit. Rates are commonly variable, payments can change and some plans require larger payments when the repayment period begins.

Home equity loan: one amount, separate payment

A home equity loan typically delivers a lump sum and is repaid in installments, often at a fixed rate. It usually sits behind the existing first mortgage, so the homeowner keeps the first loan and adds a second monthly payment.

Cash-out refinance: replace the first mortgage

A cash-out refinance creates a new first mortgage for more than the amount owed and pays the difference to the borrower after eligible costs. It may consolidate the debt into one payment, but it also resets the terms on the entire first-mortgage balance and may increase total finance charges.

Questions worth comparing

Start with how much is needed, whether it will be used once or over time, how long the debt may remain, payment tolerance and the terms of the existing first mortgage.

• Is the payment fixed or can it adjust?
• What are the upfront and ongoing costs?
• Is there an annual fee, early-closure fee or draw-period limit?
• How does each choice affect total interest and the payoff timeline?