HELOC
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Cash-out refi
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TRUE COST COMPARISON — BORROWED FUNDS ONLY
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Frequently asked questions
What is the key difference between a HELOC and a cash-out refinance?
A HELOC is a second lien — a separate line of credit on top of your existing mortgage, keeping your first mortgage rate untouched. A cash-out refinance replaces your entire mortgage with a new, larger loan. If your current mortgage has a low rate (under 4%), a cash-out refi will likely cost more overall even if the rate on new money seems competitive.
When does a cash-out refinance make sense?
A cash-out refi makes sense when: your current mortgage rate is already close to or above current market rates (so replacing it isn't costly), you want the predictability of one fixed monthly payment, or you need a large amount over a long term. It also makes sense if you're extending your payoff date intentionally to lower total monthly obligations.
When does a HELOC make sense?
A HELOC wins when you have a low-rate existing mortgage you want to keep. It also suits homeowners who don't need all the money immediately — a HELOC lets you draw as needed, paying interest only on what you've used. The flexibility is valuable for renovation projects where costs are uncertain or staggered.
Is HELOC interest tax deductible?
HELOC interest is deductible only if the funds are used to "buy, build, or substantially improve" the home securing the loan. Using HELOC funds for debt consolidation, a car, or vacation = not deductible. Cash-out refi interest follows the same rule — only the portion used for home improvement qualifies for the mortgage interest deduction.
What LTV ratio do lenders require?
Most lenders cap combined LTV (your mortgage + HELOC) at 80–85% of home value. Some go to 90% for well-qualified borrowers. Cash-out refis typically follow similar limits. If your current mortgage is $290k on a $480k home, your LTV is 60% — meaning you have significant equity and strong borrowing power.