What's the difference between a HELOC and a Cash Out Refinance?

[Kingston Yi]

Do you pay 2 different mortgages with either one?

[Ko Kashiwagi]

Hi Kingston,

With a HELOC, you are essentially opening a line of credit in addition to your original mortgage. You will have your original mortgage payment, and you will also have a payment on the HELOC if you have drawn from it. The HELOC payment is separate and in addition to your existing mortgage payment.

With a cash-out refinance, you are replacing your original mortgage with a new one, so you will only have one mortgage payment. The new mortgage will be larger than your original mortgage since it includes the additional amount you have cashed out. The single payment will cover both the original loan amount and the additional cash-out amount.

HELOC might be better if you need intermittent access to funds, while a cash-out refinance could be more suitable for a one-time need with a clear purpose.