Cash-out Refinances vs. HELOCs and HELOANs – Carrington

Let's take a look at the differences between cash-out refinances and two home-equity products—HELOCs and HELOANs.

As always, we're also here at 888-608-5534 (Monday–Friday, 11AM–9PM ET) to discuss your options. Or, you can start your application now!

What is a cash-out refinance?

A cash-out refinance pays off your existing mortgage by refinancing to a new mortgage with different terms. The remaining funds will be paid to you in a lump sum at closing—cash you can use for whatever you’d like.

What is a HELOC?

As explained in our article about home-equity products, a home equity line of credit (HELOC) allows you to borrow against the equity you’ve built up in your home. You can borrow and repay funds as you need during the HELOC’s draw period, which is usually the HELOC’s first 10 years. During this period, you’re only required to pay interest on the credit you use. Once the draw period ends, you’re required over time—usually 10 to 20 years—to pay off any remaining interest and the principal of the credit you used.

What is a HELOAN?

A home equity loan (HELOAN) is similar to a HELOC, but you’re given a lump sum of cash rather than a line of credit. HELOANs come with fixed interest rates and, unlike HELOCs, require you to begin paying interest and principal soon after closing. The length of a HELOAN term can vary, but it is usually 10 to 30 years.

Which one is right for me?

Understanding whether a cash-out refinance or HELOC is right for you isn’t always easy. Here’s a list of considerations.

	Pros	Cons
Cash-out refinance	Lower interest rates Multiple loan types Lump sum of cash at closing	Typically extends the lifetime of a mortgage Closing costs on the refinanced amount
HELOC	Maintain the interest rate on your current mortgage Lower closing costs Higher borrowing amount	Variable interest rate Higher interest rates Shorter term to use the cash Two monthly payments instead of one
HELOAN	Maintain the interest rate on your current mortgage Lower closing costs Lump sum of cash at closing Fixed interest rate	Higher interest rates Two monthly payments instead of one Payments calculated based on entire lump sum, regardless of whether you use it all

We encourage you to reach out to one of our loan officers to discuss your options and learn more about qualifications, interest rates, and draw amounts.

As a digital-first lender, we make the process quick and simple for you—especially if we already service your mortgage. You can apply online now, or connect with us by emailing loans@carringtonvm.com or calling our toll-free number: 888-608-5534 (Monday–Friday, 11AM–9PM ET).

We broker home equity loans and lines of credit to other lenders on occasion. These loans may not be available in all states.

What is a cash-out refinance?

What is a HELOC?

What is a HELOAN?

Which one is right for me?

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