Reverse Mortgage vs. HELOC vs. Home Equity Loan vs. Cash-Out Refinance

Four Products, One Underlying Asset

Once a mortgage is paid down and a home has appreciated, homeowners sit on an asset that is valuable but illiquid -- you can't spend equity without either selling the house or borrowing against it. Federal law and industry practice have settled on exactly four regulated ways to borrow against home equity, and each shows up as its own high-intent search term because they work completely differently:

1. Home Equity Line of Credit (HELOC) -- a revolving, typically variable-rate credit line, legally defined as an "open-end credit plan secured by the consumer's dwelling" under Regulation Z (12 CFR 1026.40). You draw what you need, when you need it, up to a limit.
2. Home equity loan -- a closed-end, fixed-rate, fixed-term loan for a lump sum, repaid on a fixed amortization schedule from day one -- the same math as a HELOC after its draw period ends, just with the entire balance drawn immediately.
3. Cash-out refinance -- replaces the ENTIRE existing first mortgage with a new, larger one, and pays the difference to the borrower in cash at closing. Unlike the other three, it touches your primary mortgage rate, not just a second lien.
4. Reverse mortgage (HECM) -- available only to homeowners 62 and older per the Consumer Financial Protection Bureau, this is the only option that requires no monthly principal-and-interest payment at all; the balance grows over time and is repaid when the borrower sells, moves out, or passes away.

This site has a state-by-state calculator for both of the two equity-borrowing products that vary meaningfully by state (HELOC & home equity and reverse mortgage), plus a national Mortgage Refinance Calculator that covers the cash-out-refinance math too -- run the "new loan amount" as your current balance plus the cash you want out to see the resulting payment.

HELOC vs. Home Equity Loan: Revolving Credit vs. a Lump Sum

A HELOC and a home equity loan borrow against the exact same collateral -- the equity in your home -- but Regulation Z treats them as legally different products. A HELOC is "open-end credit": you're approved for a maximum line, you draw against it as needed (often with a 10-year draw window followed by a 10-20 year repayment period), interest usually floats with an index, and your payment changes as your balance and rate change. A home equity loan is "closed-end credit": you receive one lump sum at closing, the rate is fixed, and you make the same fixed payment every month until it's paid off -- functionally identical to a car loan or a fixed mortgage, just secured by a second lien.

This site's Home Equity & HELOC Calculator (available for every state) models both scenarios with the same inputs: home value, remaining mortgage balance, interest rate, amount desired, and repayment term. To model a HELOC realistically, treat the "amount desired" as what you'll actually draw over time; to model a fixed-rate home equity loan, enter the full amount you want as a lump sum immediately -- the amortized monthly payment output is the same formula either way once a HELOC's draw period ends and its balance starts amortizing.

Most lenders cap combined loan-to-value (existing mortgage + new HELOC or home equity loan) at 80-85% of the home's value. Per IRS guidance (IR-2018-32), interest on either product is only deductible if the funds are used to "buy, build, or substantially improve" the home securing the loan, and only on a combined qualified-residence loan balance up to $750,000 ($375,000 if married filing separately) -- interest on funds used for debt consolidation, tuition, or other personal expenses is not deductible under current law.

Reverse Mortgage: The Only No-Monthly-Payment Option

A Home Equity Conversion Mortgage (HECM), the FHA-insured reverse mortgage that accounts for the vast majority of reverse mortgages made in the U.S., flips the usual mortgage relationship: instead of the borrower's balance shrinking every month, it grows, and the borrower is not required to make monthly principal-and-interest payments at all (per the CFPB, borrowers must still pay property taxes, homeowners insurance, and maintain the home, or the loan can become due). Federal regulation (24 CFR 206.33) sets a minimum borrower age of 62. Upfront costs are set by formula under 24 CFR 206.31(a)(1) -- an origination fee equal to the greater of $2,500 or 2% of the first $200,000 of the home's value (capped by a national maximum claim amount, $1,249,125 for CY2026) plus 1% of any amount above that, capped overall at $6,000 -- plus an upfront mortgage insurance premium.

Because the loan balance compounds against a fixed asset (the home), a reverse mortgage is really a retirement-income decision, not a general-purpose borrowing decision: it makes the most sense for homeowners 62+ who plan to stay in the home long-term and want to supplement income or delay tapping a taxable retirement account, not for someone who needs a lump sum for a short-term project and plans to move soon (a HELOC or home equity loan is cheaper for that). Run the Reverse Mortgage Calculator for your state to see your specific origination fee, insurance premium, and how the loan balance is projected to grow against your home's equity over time.

Cash-Out Refinance: When You Touch the First Mortgage Instead

A cash-out refinance is the odd one out: rather than adding a second loan on top of your existing mortgage, it replaces the whole first mortgage with a new, larger one at a new rate, and pays you the difference in cash at closing. That makes it fundamentally different from a HELOC or home equity loan in one critical way -- if your current mortgage rate is well below today's market rate, a cash-out refinance forces you to give up that low rate on your ENTIRE loan balance, not just the amount you're cashing out. A HELOC or home equity loan, by contrast, leaves your low-rate first mortgage untouched and only charges the new, typically-higher rate on the new money borrowed.

Cash-out refinances also reset your amortization clock and typically carry full first-mortgage closing costs (2-5% of the new loan amount, versus lighter closing costs on many HELOCs). They tend to make the most sense when your current rate is close to or above today's market rate anyway, or when you want to simultaneously shorten your term or drop mortgage insurance. Model the new payment with this site's Mortgage Refinance Calculator by entering your desired new loan amount (existing balance plus cash out) against current market rates -- and compare the result against a same-size HELOC or home equity loan from the Home Equity Calculator before choosing.

Which One Fits Your Situation?

Need a small amount, might not use all of it, want flexibility: a HELOC's draw-as-needed structure and typically lower upfront costs fit best -- but budget for rate variability.

Need one exact lump sum and want payment certainty: a fixed-rate home equity loan removes the rate risk of a HELOC at the cost of paying interest on the full amount from day one, even if you don't spend it all immediately.

Your current mortgage rate is at or above today's market rate, or you also want to change your loan term: a cash-out refinance lets you solve two problems (rate/term and cash) in a single new loan, at the cost of resetting your amortization and full first-mortgage closing costs.

You're 62 or older, plan to stay long-term, and want income without a monthly payment obligation: a reverse mortgage (HECM) is the only option built for exactly that -- but it's also the option where the growing balance most directly reduces the equity available to heirs, so running the state calculator's loan-balance-vs-home-equity projection before committing matters more here than for any of the other three.

All four draw against the same underlying number -- your home equity -- so before choosing, it's worth first confirming how much equity you actually have relative to peers in your state and running the specific product calculator against your own numbers rather than a generic rate quote.