What we verified in “HELOC vs cash-out refinance: how they compare”

Statements and where we checked them

The statements with rules, figures or dates, with the exact place in the source and the date we checked them.

1. According to the CFPB, a home equity line of credit (HELOC) is an 'open-end' line of credit that lets you borrow repeatedly against your home equity; equity is the value of your home minus what you owe on your mortgage; the CFPB says to consider a HELOC only if you are confident you can keep up with the payments, because if you fall behind or can't repay on schedule, you could lose your home.

   Sources 1 · What is a home equity line of credit (HELOC)? (reviewed August 28, 2026): 'line of credit that allows you to borrow repeatedly against your home equity'; 'which is the value of your home minus the amount you owe on your mortgage'; 'Only consider a HELOC if you're confident you can keep up with the loan payments'; 'If you fall behind or can't repay the loan on schedule, you could lose your home' · Checked October 17, 2026

2. According to the CFPB, with a HELOC you can generally spend up to your limit anytime during the draw period, which could last 10 years, for example; you usually draw with special checks or a credit card; the lender can charge fees, and some plans require a minimum draw each time or a minimum balance; many HELOCs have minimum payments based on your balance; and if your home's value drops significantly, or your finances change and the lender doubts you can pay, it may stop letting you draw more.

   Sources 1 · What is a home equity line of credit (HELOC)?: 'you can generally spend up to your credit limit anytime during the borrowing period'; 'The draw period could last 10 years, for example'; 'Typically, you use special checks or a credit card to draw on your line of credit'; 'Lender can charge certain fees when you get a HELOC'; 'Some plans also require you to borrow a minimum amount each time'; 'many HELOCs have minimum monthly payments based on your current balance'; 'If the value of your home decreases significantly, your lender might decide not to allow you to take out additional credit'; 'freeze your ability to take out additional funds if your financial circumstances change' · Checked October 17, 2026

3. According to the CFPB, when the draw period ends you can no longer borrow and you enter the repayment period; the lender may set a schedule to repay the full balance, and monthly payments are often significantly higher; in some cases you must repay the whole amount as soon as repayment begins; HELOCs usually have a variable rate, so payments may change month to month; and some let you convert part of the balance to a fixed rate, which is usually higher but more predictable.

   Sources 1 · What is a home equity line of credit (HELOC)?: 'After the draw period ends, you stop being able to borrow from your HELOC and enter the'; 'Your lender may set a schedule so that you repay the full balance'; 'Monthly payments are often significantly higher once you enter repayment'; 'you may have to pay back the whole amount you borrowed as soon as the repayment period begins'; 'HELOCs usually have a variable interest rate, so your payments may change from month to month'; 'the fixed rate is usually higher than the variable rate but is also more predictable' · Checked October 17, 2026

4. According to the CFPB, a home equity loan gives you the money as a lump sum, usually at a fixed rate; if you can't repay it, the lender could foreclose on your home; it may have upfront fees, so compare more than the monthly payment; and before using one to consolidate debts, the CFPB suggests talking with a qualified credit counselor about alternatives that do not put your home at risk.

   Sources 2 · What is a home equity loan? (reviewed September 11, 2024): 'You receive the money from a home equity loan as a lump sum'; 'A home equity loan usually has a fixed interest rate'; 'If you cannot pay back the HEL, the lender could foreclose on your home'; 'home equity loans may have upfront fees and costs, so be sure to compare more than just your monthly payment'; 'talk to a qualified credit counselor to help you weigh your options' · Checked October 17, 2026

5. According to the CFPB, home equity loans and HELOCs are common examples of second mortgages; if your home is sold to pay the debts, the second mortgage is paid after the first, which is why they often carry higher rates; taking one adds to your overall debt; a major risk is that if you cannot repay, you could lose your home because it is the collateral; and using home equity to pay off other debts does not really pay them off, it replaces one loan with another and can mean paying interest for many more years.

   Sources 3 · What is a second mortgage loan or junior-lien? (reviewed September 11, 2024): 'Home equity loans and home equity lines of credit (HELOCs) are common examples of second mortgages'; 'this loan is paid off second'; 'second mortgage loans often carry higher interest rates than first mortgage loans'; 'you are adding to your overall debt burden'; 'you could potentially lose your home because you are using the equity in your home as collateral'; 'When you use home equity to pay off other debts you really aren't paying them off'; 'Be careful about trading short-term debt for long-term debt at a higher cost to you' · Checked October 17, 2026

6. In its HELOC booklet, the CFPB compares money sources: with a HELOC you borrow against your home equity, typically at a variable rate, and your home is at risk; with a cash-out refinance you replace your mortgage with a bigger one and take the difference in cash, at a variable or fixed rate, your home is also at risk, you keep just one mortgage payment, and the disadvantages include generally higher closing costs, possibly taking longer to pay off your mortgage and a rate that may be higher than your current one. With a personal line of credit or a credit card your home is not at risk, but the rate is higher than on a loan secured by your home. The list also includes the reverse mortgage (HECM), for people 62 or older.

   Sources 4 · What you should know about home equity lines of credit, table 'Compare a HELOC to other money sources' (pp. 2–5; the PDF's column layout splits sentences, checked by hand): 'You borrow against'; 'Variable.'; 'You replace your'; 'existing mortgage'; 'with a bigger'; 'the difference in cash'; 'or fixed'; 'just one mortgage'; 'Closing costs are'; 'generally higher'; 'it may take longer'; 'than your current'; 'IS YOUR'; 'HOME AT'; 'Higher interest rate'; 'You must be age 62' · Checked October 17, 2026

7. According to the CFPB booklet, some plans allow interest-only payments during the draw period; some lenders waive some or all up-front HELOC costs and others charge them: for example, an appraisal, an application fee that might not be refunded if you are turned down, and closing costs such as attorneys, title search, mortgage preparation and filing, insurance and taxes; when the draw period ends you may have to pay the entire balance at once (a balloon payment), and if you can't pay it in full you could lose your home; if you sell your home you generally must pay off the HELOC in full immediately; renting out your home may be prohibited by the terms of the line; a variable rate has two parts, the index and the margin; and some lenders offer an introductory or teaser rate that is unusually low for a short period.

   Sources 4 · What you should know about home equity lines of credit, pp. 3, 6–7 and 12 (two-column text, checked by hand): 'Some lenders waive some or all of the up-front'; 'Other plans may allow payment of the interest only,'; 'An application fee, which might not be'; 'refunded if you are turned down'; 'title search, mortgage preparation and filing'; 'all at once, which might be a large amount called'; 'balloon payment in full, you could lose your home'; 'If you sell your home, you are generally required'; 'to pay off your HELOC in full immediately'; 'Renting your home out to other people may be'; 'prohibited under the terms of your line of credit'; 'the index and the margin'; 'or teaser rate that is unusually low for a short' · Checked October 17, 2026

8. According to the CFPB booklet, lenders must give you a list of HUD-approved housing counselors in your area, who offer free or low-cost help; you can cancel the line in the first three days by notifying the lender in writing, and the lender must return the fees you paid, including application and appraisal fees; and HELOCs generally let the lender freeze or reduce your line if your home's value falls or your finances worsen, in which case the booklet suggests talking with your lender to find out the reason.

   Sources 4 · What you should know about home equity lines of credit, pp. 13 and 15 (two-column text, checked by hand): 'Lenders must give you a list of HUD-approved'; 'housing counselors in your area'; 'free or low-cost help with budgeting and money'; 'you can cancel the credit line in the'; 'Notify the lender in writing within'; 'the fees you paid, including application and'; 'HELOCs generally permit the lender to freeze or'; 'reduce your credit line if the value of your home'; 'falls or if they see a change for the worse in your'; 'Talk with your lender. Find out the reason' · Checked October 17, 2026

9. Under Regulation Z (12 CFR §1026.40), the lender must give you the HELOC disclosures and the booklet when it gives you an application; no one may charge a nonrefundable application fee until three business days after you receive them; if a disclosed term changes before the plan opens (other than index movement on a variable rate) and you decide not to open it, all fees must be refunded; the lender may change the rate only based on a publicly available index it does not control; and it may terminate the plan and demand the full balance early only for fraud or material misrepresentation, failure to meet the repayment terms, or action or inaction that adversely affects its security.

   Sources 5 · 12 CFR §1026.40(b) ('shall be provided at the time an application is provided to the consumer'), (f)(1) ('based on an index that is not under the creditor's control'; 'available to the general public'), (f)(2) ('Terminate a plan and demand repayment of the entire outstanding balance in advance of the original term'; 'There is fraud or material misrepresentation by the consumer'; 'The consumer fails to meet the repayment terms'; 'adversely affects the creditor's security'), (g) ('A creditor shall refund all fees paid by the consumer to anyone in connection with an application') and (h) ('may impose a nonrefundable fee in connection with an application until three business days after the consumer receives the disclosures and brochure') · Checked October 17, 2026

10. Under Regulation Z (12 CFR §1026.40(f)(3)(vi)), the lender may stop extending credit or reduce your limit while your home's value is significantly below its appraised value for the plan, while it reasonably believes you will be unable to pay because of a material change in your finances, or while you are in default of a material obligation.

    Sources 5 · 12 CFR §1026.40(f)(3)(vi): 'Prohibit additional extensions of credit or reduce the credit limit'; 'declines significantly below the dwelling's appraised value for purposes of the plan'; 'because of a material change in the consumer's financial circumstances'; 'The consumer is in default of any material obligation under the agreement' · Checked October 17, 2026

11. Under Regulation Z (12 CFR §1026.15), on a credit line secured by your principal dwelling you may rescind the plan when it is opened, when the security interest is added or increased and when the limit is increased, but not each draw within an established limit; you notify in writing by midnight of the third business day after the latest of that event, delivery of the notice and delivery of the material disclosures; if they were not delivered, the right lasts up to three years; and the lender must return the money within 20 calendar days after receiving your notice.

    Sources 6 · 12 CFR §1026.15(a)(1) ('the plan when the plan is opened'; 'the increase when a credit limit on the plan is increased'; 'does not have the right to rescind each credit extension made under the plan'), (a)(2) ('by mail, telegram, or other means of written communication'), (a)(3) ('until midnight of the third business day'; 'expire 3 years after the occurrence giving rise to the right of rescission') and (d)(2) ('Within 20 calendar days after receipt of a notice of rescission') · Checked October 17, 2026

12. According to the CFPB, you have the right to cancel a refinance or HELOC within three business days; you can waive that right only for a bona fide personal financial emergency, with your own written statement (preprinted forms are not allowed) describing the emergency, dated and signed by you and everyone else who shares ownership of the home.

    Sources 7 · Can I ever waive my right to rescind on my mortgage loan? (reviewed September 11, 2024): 'your right to cancel your transaction within three business days for your refinance or home equity line of credit'; 'bona fide personal financial emergency'; 'pre-printed forms are not allowed'; 'The statement must be dated and signed by you and anyone else who shares in the ownership of the home' · Checked October 17, 2026

13. According to the CFPB, the Loan Estimate is a three-page form you receive after applying for a mortgage, such as a refinance; but you do not receive one for a home equity line of credit (HELOC): you receive Truth-in-Lending disclosures instead.

    Sources 8 · What is a Loan Estimate? (reviewed August 9, 2024): 'a three-page form that you receive after applying for a mortgage'; 'You will not receive a Loan Estimate or Closing Disclosure if you are shopping for'; 'A home equity line of credit (HELOC)'; 'you should receive Truth-in-Lending disclosures' · Checked October 17, 2026

14. According to HUD Handbook 4000.1, in a cash-out refinance the new mortgage's proceeds are not limited to specific purposes.

    Sources 9 · Handbook 4000.1, II.A.8: 'A Cash-Out Refinance is a refinance of any Mortgage or a withdrawal of equity where no Mortgage currently exists, in which the mortgage proceeds are not limited to specific purposes' · Checked October 17, 2026

15. According to HUD Handbook 4000.1, on an FHA cash-out refinance the maximum loan is 80 percent of the Adjusted Value, including other liens, and a property with a mortgage must have at least six months of payments on the current loan.

    Sources 9 · Handbook 4000.1, II.A.8, Cash-Out Refinances: 'must have a minimum of six months of Mortgage Payments on the current loan'; 'The maximum LTV is 80 percent of the Adjusted Value'; 'The maximum CLTV is 80 percent of the Adjusted Value' · Checked October 17, 2026

16. According to VA, keep closing costs in mind when refinancing because they can add up to thousands of dollars, and understand how the new loan amount relates to your home's value.

    Sources 10 · Cash-out refinance loan (updated January 7, 2026): 'You'll want to keep closing costs in mind when refinancing a loan, as they can add up to thousands of dollars'; 'Make sure you understand how your new loan amount relates to the value of your home' · Checked October 17, 2026

17. According to the CFPB, a larger loan increases your payments and reduces your equity, and the costs of a 'no-cost' loan are covered with a higher rate or added to the loan.

    Sources 11 · Is there such a thing as a no-cost or no-closing cost loan or refinancing? (reviewed April 3, 2024): 'charging you a higher interest rate and giving you a credit'; 'adding the closing costs to your loan amount'; 'increase your payments and reduce your equity' · Checked October 17, 2026

18. According to the CFPB, refinances and home equity loans are non-purchase mortgages, and for most of them you have three business days to cancel after signing.

    Sources 12 · Can I change my mind after I sign the loan closing documents for my second mortgage or refinance? (reviewed August 8, 2024): 'Refinances and home equity loans are examples of non-purchase money mortgages'; 'This right gives you three business days to cancel a non-purchase money mortgage agreement' · Checked October 17, 2026

19. According to the CFPB, if you have a HELOC, you may need its lender's approval to refinance your first mortgage; that lender can refuse, and then you may need to pay off the HELOC to refinance.

    Sources 13 · Does a HELOC affect my ability to refinance my first mortgage loan? (reviewed February 2, 2024): 'you may have to get approval from your HELOC lender in order to refinance your first mortgage loan'; 'HELOC lenders can refuse to allow you to refinance'; 'you may need to pay off the HELOC in order to refinance' · Checked October 17, 2026

20. According to the IRS (Publication 936, for 2025 returns), no matter when the debt was incurred, you can no longer deduct interest on a loan secured by your home to the extent the proceeds were not used to buy, build or substantially improve your home; and to deduct mortgage interest you must itemize deductions on Schedule A (Form 1040).

    Sources 14 · Publication 936 (2025), Home Mortgage Interest Deduction, 'Home equity loan interest': 'No matter when the indebtedness was incurred, you can no longer deduct the interest from a loan secured by your home to the extent the loan proceeds weren't used to buy, build, or substantially improve your home'; 'itemize deductions on Schedule A (Form 1040)' · Checked October 17, 2026

21. HUD-approved housing counselors give independent advice on defaults, foreclosures and credit, often for free or at low cost.

    Sources 15 · Find a Housing Counselor: 'Housing counselors throughout the country can provide advice on buying a home, renting, defaults, forbearances, foreclosures, and credit issues'; 'they can offer independent advice, often at little or no cost to you' · Checked October 17, 2026