There are several upsides when using a HELOC to access money rather than a cash-out refinance, said Matt Hackett, operations manager for Equity Now, a mortgage lender. They have relatively low closing costs and give you the ability to withdraw and pay back money over the draw period.

Another significant point to understand: A HELOC does not replace your existing mortgage.

The drawbacks of a HELOC

Because the interest on a HELOC is variable, the rate can change from month to month, a fact that can be unsettling for borrowers.

HELOCs also typically have a shorter repayment timeline once the draw period ends compared to a cash-out refinance, said Hackett. Typically, HELOCs must be paid back in 20 years, instead of the 30 years commonly associated with mortgages.

“This leads to a higher monthly payment,” said Hackett of the HELOC.

Cash-out refinance

A cash-out refinance is a new mortgage. You’re paying off an existing mortgage with a new one that has different terms, such as a more competitive interest rate.

In addition, a cash-out refinance can be obtained with a fixed interest rate, which may be more comforting for some borrowers, said Hackett.