You tap the equity only as you need it. Having a HELOC can be a budget saver, especially when you use your home’s equity for the right reasons, because the interest rate on a HELOC tends to be lower.
The approval process for a cash-out refinance is similar to the initial approval process when buying a home. It can be somewhat cumbersome, but the payoff is a lower interest rate, a fixed payment, and access to additional cash. Both a home equity line of credit and a cash-out refinance have fees associated with them.
Unlike a cash-out refinance, a home equity loan or line of credit is taken out separately from your existing mortgage. A home equity line of credit is basically a line of credit in which your home is the collateral; similar to a credit card, you can withdraw money from this line of credit whenever you need it up to a certain amount.
Cash-out refinancing and home equity loans are both ways for borrowers to access the equity they’ve accumulated in their homes and use it for home improvement projects, debt consolidation, or other financial needs.