Reviewed by: Steve Arniotes, Senior Loan Advisor | NMLS #2304427
November 10, 2026
Key takeaways
- A HELOC lets you borrow without changing your current mortgage. This can be appealing if you have a low mortgage rate you want to keep. But you’ll have a second payment, which could rise over time.
- A cash-out refinance replaces your existing mortgage. You take out a new, larger loan and receive the difference in cash. It may make sense if you want to change your mortgage rate or terms anyway.
- Neither option is automatically cheaper. A HELOC rate applies to the additional money you borrow, while a refinance rate applies to your entire new mortgage. Compare monthly payments, closing costs and total interest.
- HELOCs may let you borrow more against your home. Cash-out refinance limits are often lower, but how much you qualify for depends on your equity, credit, income and lender requirements.
HELOC vs. cash-out refinance at a glance
| HELOC | Cash-out refinance | |
| Current mortgage | Stays in place | Replaced with a larger loan |
| Payments | Usually two: mortgage and HELOC | One new mortgage payment |
| Rate | Often variable; some fixed-rate options | Fixed or adjustable, depending on the loan |
| Access to money | Credit line; may require an upfront draw | Lump sum when the loan funds |
| Borrow again? | Generally, during the draw period | No |
When does each option make more sense?
A HELOC may make more sense if you have a low mortgage rate
Suppose you owe $300,000 on your mortgage and need $75,000 for renovations. With a HELOC, you keep your existing mortgage and borrow the $75,000 separately. That’s appealing if your current mortgage has a rate you wouldn’t want to lose.
You may also be able to borrow again as you pay down the HELOC. But you’ll have a second payment, and a variable rate could make it rise. Some HELOCs initially require only interest payments, which means your payment may jump when you start repaying the amount borrowed. A lender may also freeze unused credit if your home’s value drops significantly.
A cash-out refinance may make more sense if you want to change your mortgage
A cash-out refinance could make sense if your current rate is relatively high, you want different loan terms or you’d prefer one payment instead of two.
In the same example, you would take out a new mortgage of about $375,000, before closing costs. It pays off the $300,000 mortgage and leaves you with roughly $75,000 in cash. The new rate applies to the full $375,000, not just the extra money. Starting a new, longer loan term could also increase your total interest costs.
For a fixed-rate lump sum that leaves your mortgage alone, a home equity loan is another option.
Numerical example is for illustrative purposes only. Figures are hypothetical and do not represent an offer of financing. Actual borrowing amounts and cash received depend on your eligibility, property value, outstanding mortgage balance, loan program and applicable closing costs.
What costs less, a HELOC or a Cash Out Refi?
Start by comparing your total monthly payment, not just the advertised rates. Add your HELOC payment to your existing mortgage payment, then compare that with the payment on a new cash-out refinance.
Look beyond the first payment. HELOC rates can change, and interest-only payments can rise when principal repayment begins. A refinance with a longer term might lower your payment but cost more in interest over time.
Closing costs matter, too. Cash-out refinances generally have higher upfront costs. Tomo Mortgage charges zero lender fees on home purchase and refinance loans. Third-party costs and any discount points you choose still apply. HELOC fees vary by lender and may include annual or early-closure fees.
Why your current mortgage rate matters
Comparing a HELOC rate directly with a cash-out refinance rate can be misleading. A HELOC’s rate applies only to the additional money you borrow, while a refinance rate applies to your entire new mortgage.
That’s why keeping a low-rate mortgage and adding a higher-rate HELOC can sometimes cost less than refinancing, even if the refinance rate is lower than the HELOC rate. The actual answer depends on your balances, payments, fees and repayment terms.
A mortgage’s APR generally includes certain loan costs, while a HELOC’s APR generally doesn’t include closing costs. Don’t compare APRs without checking the fees behind them.
How much can you borrow?
For a one-unit primary residence, Fannie Mae generally allows conventional cash-out refinancing up to 80% of the home’s value. HELOC limits depend on the lender and may be higher.
For example, if your home is worth $600,000 and you owe $350,000, Tomo Mortgage’s published maximums could allow:
- HELOC: Up to a $190,000 credit line, using a 90% combined borrowing limit.
- Cash-out refinance: Up to $130,000 in cash before closing costs, using an 80% limit.
These are maximum illustrations, not approvals. Your credit, income, property and loan program affect what you may qualify for. Limits can be lower for second homes or investment properties. Borrowing more also leaves you with less equity if your home’s value falls.
How do Tomo Mortgage’s options compare?
Tomo Mortgage offers both products, with these published general requirements as of November 10, 2026:
| Tomo Mortgage HELOC | Tomo Mortgage cash-out refinance | |
| Minimum credit score | 600 | 620 |
| Borrowing limit | $25,000 – $750,000; up to 90% of home value counting your existing mortgage | Generally up to 80% of home value |
| Advertised timeline | Funding in as few as 5 days | Closing in as few as 12 days |
| How funds arrive | Must draw at least 75% of the line upfront; some programs require more | Lump sum |
| Availability | Select states | Cash-out refinancing unavailable on Texas properties |
Actual eligibility, terms and timelines depend on your application, property and state. Advertised minimum scores and maximum amounts don’t guarantee approval. A federal three-business-day right to cancel generally applies when these loans are secured by your primary residence, which can affect when funds are released.
Both loans put your home at risk if you miss payments. Using either to pay off credit cards also turns unsecured debt into debt secured by your home.
Compare your options
If keeping your existing mortgage is a priority, explore a HELOC. If you’re ready to replace it, compare a cash-out refinance. Review the payment, fees and long-term costs of each offer before deciding.
Loan options, eligibility and availability vary by borrower, property and state. Tomo Mortgage, LLC. NMLS #2059741. Equal Housing Lender.
Frequently asked questions
Is a HELOC better if my mortgage rate is low?
It may be. A HELOC lets you keep that rate, but its own payments, fees and potential rate changes still count. Compare the full cost of both options.
Do you need an appraisal for a HELOC or cash-out refinance?
Not always. Lenders need to determine your home’s value, but some can use an automated estimate instead of an in-person appraisal. Whether you need a full appraisal depends on the lender, your property and the amount you’re borrowing.
Can you get a HELOC or cash-out refinance on a paid-off home?
Yes, you may qualify for either even if you no longer have a mortgage. A HELOC would let you borrow against your equity through a credit line, while a cash-out refinance would create a new mortgage. Approval depends on the lender’s requirements, your finances and your property.
Is interest on a HELOC or cash-out refinance tax-deductible?
It may be if you use the money to buy, build or substantially improve the home securing the loan. Other rules apply, and you generally must itemize deductions. See IRS Publication 936 or ask a tax professional.