WiseIQ Editorial Team
Reviewed by certified financial experts · Updated March 2026
Home Equity
If you own a home with equity, you have two primary ways to tap it: a home equity line of credit (HELOC) or a cash-out refinance. Both let you convert equity into usable cash, but they work very differently — and in today's rate environment, the choice between them can mean thousands of dollars in savings or costs.
This guide breaks down how each product works, when each makes sense, and how to decide which is right for your situation in 2026.
A HELOC is a revolving line of credit secured by your home equity. It works similarly to a credit card: you are approved for a maximum credit limit, and you can draw funds as needed during the draw period (typically 10 years). You only pay interest on the amount you actually borrow. After the draw period ends, you enter a repayment period (typically 20 years) during which you repay both principal and interest.
HELOCs almost always carry variable interest rates tied to the prime rate. As of early 2026, HELOC rates typically range from 8.5% to 12% APR depending on your credit score, equity, and lender.
Based on our analysis of thousands of consumer financial profiles, the most common mistake people make is focusing solely on the interest rate without considering total loan cost, fees, and repayment flexibility. Always compare the APR — not just the rate — and read the fine print on prepayment penalties before signing.
A cash-out refinance replaces your existing mortgage with a new, larger mortgage. The difference between your new loan balance and your old balance is paid to you in cash at closing. For example, if you owe $200,000 on a home worth $400,000 and you refinance to $280,000, you receive $80,000 in cash (minus closing costs).
Cash-out refinances typically carry fixed rates and are structured as 15- or 30-year mortgages. As of early 2026, 30-year fixed cash-out refinance rates range from approximately 6.8% to 8.5% APR depending on your credit profile and lender.
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| Feature | HELOC | Cash-Out Refinance |
|---|---|---|
| Rate type | Variable (prime + margin) | Fixed (typically) |
| Current rate range (2026) | 8.5% – 12% APR | 6.8% – 8.5% APR |
| Closing costs | $0 – $500 | 2% – 5% of loan amount |
| Affects existing mortgage? | No — second lien | Yes — replaces first mortgage |
| Disbursement | Draw as needed (revolving) | Lump sum at closing |
| Best for | Ongoing projects, flexibility | Large one-time needs, rate consolidation |
| Min. credit score (typical) | 620 | 620 (best rates: 740+) |
| Max. LTV (typical) | 85% CLTV | 80% LTV |
The single most important variable in this decision is your current mortgage rate. If you locked in a mortgage at 3%–4% during 2020–2022, a cash-out refinance would force you to replace that rate with today's rates near 7%+. On a $300,000 balance, that difference costs roughly $500–$700 more per month — a significant penalty just to access your equity.
In this scenario, a HELOC is almost always the better choice. You preserve your low first mortgage rate and only pay the higher rate on the equity you actually borrow.
If your existing mortgage rate is already at or above current market rates (for example, you have an adjustable-rate mortgage that has reset higher), a cash-out refinance may make sense — you could potentially lower your first mortgage rate while also extracting equity.
Choose a HELOC if: Your existing mortgage rate is below 6.5%, you need flexibility to draw funds over time, or you are doing a multi-phase home renovation.
Choose a cash-out refinance if: Your existing mortgage rate is at or above current market rates, you want a single fixed payment, or you need a large lump sum and want rate certainty.
Figure is the fastest HELOC lender in the market, using automated underwriting and a digital appraisal process to fund in as few as 5 business days. Unlike traditional HELOCs, Figure offers a fixed-rate option that eliminates variable rate risk — a significant advantage in an uncertain rate environment.
Check Your Rate at Figure →Spring EQ allows borrowers to access up to 95% of their home's value — significantly more than the 85% CLTV cap most lenders impose. This makes it an excellent option for homeowners who need to maximize the equity they can access.
Compare HELOC Rates →LendingTree lets you compare HELOC offers from multiple lenders with a single application — saving you time and helping you find the lowest rate available for your credit profile and equity position.
Compare HELOC Rates →Both HELOCs and cash-out refinances are limited by your home's equity and your lender's loan-to-value requirements. Here is how to estimate your maximum borrowing amount:
Example: Home value $450,000 × 85% = $382,500. Minus current mortgage balance of $250,000 = $132,500 maximum HELOC or cash-out amount.
Interest on both HELOCs and cash-out refinances may be tax deductible, but only if the funds are used to "buy, build, or substantially improve" the home securing the loan. Interest on funds used for debt consolidation, vacations, or other personal expenses is generally not deductible. The Tax Cuts and Jobs Act of 2017 significantly restricted the deductibility of home equity debt. Consult a tax professional to understand the deductibility of your specific situation.
WiseIQ's editorial team researches and fact-checks all content using primary sources. Our recommendations are based on independent analysis and are not influenced by advertiser relationships.
Last reviewed: April 2026 | How we rank products
In 2026, a HELOC is generally better if your existing mortgage rate is below current market rates (around 7%). A cash-out refinance may make sense if you want a single fixed payment and current rates are close to your existing rate, or if your current mortgage is already at a high rate.
Most lenders require a minimum credit score of 620 for a HELOC, though the best rates typically require 700 or higher. Lenders also look at your combined loan-to-value ratio (CLTV), which should generally be 85% or lower.
Most lenders require you to retain at least 20% equity in your home after the cash-out refinance, meaning your loan-to-value ratio cannot exceed 80%. VA loans allow up to 100% LTV for eligible veterans.
HELOC interest may be tax deductible if the funds are used to buy, build, or substantially improve the home securing the loan. Interest on funds used for other purposes is generally not deductible. Consult a tax professional for guidance specific to your situation.
Closing costs for a cash-out refinance typically range from 2% to 5% of the loan amount. On a $300,000 loan, that is $6,000 to $15,000. Some lenders offer no-closing-cost refinances, but these typically come with a higher interest rate.