Refinance vs. Home Equity Loan: Which Is Better?

House with dollar bills and interest rate symbols

When tapping your home’s equity, you have two main options: refinancing your mortgage or taking out a home equity loan (or HELOC). Both can unlock cash, but they differ in structure, costs, and risks. In this guide, we’ll compare each option to help you choose the best path.

Table of Contents

1. What Is a Mortgage Refinance?

Refinancing replaces your existing mortgage with a new loan—often at a lower rate or different term. Cash-out refinancing allows you to borrow more than your current balance and receive the difference in cash.

2. What Is a Home Equity Loan?

A home equity loan (second mortgage) lets you borrow against the equity in your home as a separate loan. HELOCs work like a credit line, while fixed-rate home equity loans provide a lump sum with set payments.

3. Key Differences

Feature Refinance (Cash-Out) Home Equity Loan/HELOC
Loan Structure New single mortgage Second mortgage or revolving line

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