Cash-out refinance
A cash-out refinance replaces your current first mortgage with a larger one and gives you the difference in cash, minus costs. Your whole balance takes on the new terms. It can make sense when the new terms are also an improvement on your existing loan, or when you have no first mortgage at all.
Home equity loan
A home equity loan is a separate second mortgage with a fixed amount paid out at closing and, usually, a fixed repayment schedule. Your first mortgage stays as it is. This can suit a one-time expense when your existing first mortgage has terms you want to keep.
How the three main ways to borrow against a home differ in structure, cost and risk.
Home equity line of credit
A HELOC is a revolving line secured by your home. You draw as needed during a draw period and repay during a repayment period. Rates are commonly variable, tied to an index plus a margin. Read the terms for minimum draws, annual fees and what happens when the draw period ends.
Costs and limits
All three have closing costs, and each program caps the combined loan-to-value against the appraised value. Second liens can carry different pricing from first mortgages. In Texas, homestead equity borrowing follows Article XVI, Section 50 of the state constitution.
Your home is the collateral
With any of these options, missing payments can lead to foreclosure. Borrow only what the goal requires, compare total cost over the period you expect to carry the debt, and for a primary residence, remember that federal law gives you three business days after closing to cancel most refinances and home equity loans.
Sources
Sources checked 10/23/2026. General education only; confirm current rules with official sources and a licensed lender.