Both HELOCs and refinancing let you access your home equity—but they work very differently. Choosing the right option can save you thousands of dollars and provide the flexibility you need. Here's everything you need to know to make the right choice.
How Each Option Works
HELOC (Home Equity Line of Credit)
Structure:
- Revolving credit line secured against your home
- Maximum usually 65% of home value (combined with mortgage, up to 80%)
- Draw funds as needed, pay back, draw again
- Interest-only payments on outstanding balance
Rate:
- Variable rate (typically prime + 0.50% to prime + 2.00%)
- Current range: 5.45% - 6.95%
Refinance
Structure:
- Replace existing mortgage with new, larger mortgage
- Maximum 80% of home value
- Receive lump sum difference as cash
- Principal + interest payments
Rate:
- Fixed or variable available
- Typically lower than HELOC (current 4-5%)
Head-to-Head Comparison
| Feature | HELOC | Refinance | --------- | ------- | ---------- | Access type | Revolving | Lump sum | Rate | Variable only | Fixed or variable | Payment | Interest only | P+I | Flexibility | High | Lower | Setup cost | Lower ($500-$1,000) | Higher ($2,000-$5,000+) | Ongoing cost | Potentially higher | Lower rate | Speed | 2-3 weeks | 4-6 weeks | Penalty on exit | None | May apply |
Explore Your OptionsTalk to our team about whether a HELOC or refinance makes more sense for your specific situation. When to Choose a HELOCA HELOC is often better when: 1. You Have Ongoing or Uncertain Expenses
2. You Want Flexibility
3. You Want to Avoid Breaking Your Mortgage
4. Short-Term Needs
When to Choose RefinancingRefinancing is often better when: 1. You Have a Known, One-Time Need
2. You Want Lower Rates
3. You Want to Restructure
4. Your Current Mortgage Rate Is High
Cost Comparison ExampleScenario: $100,000 needed from home equity Explore Your OptionsTalk to our team about whether HELOC or refinance makes more sense. Get StartedHELOC Costs |
Cost Type | Amount | ----------- | -------- | Setup costs | $500-$1,000 | Monthly interest (at 6.5%) | $542 | Annual interest | $6,500 |
Refinance Costs |
Cost Type | Amount |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Penalty (estimated) | $5,000 | ||||||||||||||||||||||||||||||||||||||||||
| Legal fees | $1,500 | ||||||||||||||||||||||||||||||||||||||||||
| Appraisal | $0-$400 | ||||||||||||||||||||||||||||||||||||||||||
| Monthly P+I (at 4.5%, 25yr) | $555 | ||||||||||||||||||||||||||||||||||||||||||
| Annual interest | ~$4,400 |
Analysis: Higher upfront cost for refinance, but $2,100/year less in interest. Break-even in ~3 years.
The Readvanceable Mortgage: Best of Both
Some products combine mortgage and HELOC:
How it works:
- Mortgage portion amortizes normally
- As principal is paid down, HELOC limit increases
- Total credit remains at 80% of home value
- Access equity without refinancing
Example:
- Home value: $700,000
- Maximum credit (80%): $560,000
- Mortgage: $400,000
- Available HELOC: $160,000
- As mortgage pays down, HELOC room increases
FAQ
Q: Can I have both a HELOC and a mortgage?
A: Yes—this is very common. Your first mortgage stays in place; the HELOC is registered in second position. Combined, they can't exceed 80% of home value.
Q: Which has lower rates?
A: Refinanced mortgages typically have lower rates than HELOCs. HELOCs trade higher rates for flexibility.
Q: What if I only need funds for 1-2 years?
A: HELOC usually makes more sense—lower setup costs and no penalty when you pay it off.
Q: Can I convert HELOC to a fixed rate?
A: Many HELOCs allow you to "term out" portions into fixed-rate segments. Ask your lender about this feature.
Q: Is HELOC interest tax-deductible?
A: Only if used for investment purposes (buying investments, rental property, or business). Interest for personal use (renovations, debt consolidation) is not deductible.
What's Next
The best choice depends on your specific situation—how much you need, for how long, and what your existing mortgage looks like. Talk to our team for personalized advice on the most cost-effective way to access your equity.
Find the Right Option for You
Our team will analyze your situation and recommend the most cost-effective way to access your home equity.
