Video | The Difference between a HELOC and a Cash Out Refi

Cash Out Refinance vs HELOC*

Published February 1, 2021

What’s the difference between a HELOC & Cash Out Refi?

Quite often, CUTX members call and inquire about doing a cash out refinance. As we begin discussing their situation & what they’re looking to accomplish or do, sometimes we discover that a cash out refinance is not the best option for them. A cash out refinance will take your first mortgage, refinance it, get you some cash out in the process, and that’s where it ends. If you ever want to take cash out in the future, you’ll have to refinance and go through that whole process all over again.

A home equity line of credit works differently. We can leave your first mortgage alone and set up the HELOC separately. This means you can have access to those funds repeatedly. Whenever you access the funding available from your line of credit, you won’t have to pay additional closing costs that would be due each time you set up a cash out refi.

Comparison Takeaways

  • For some members, a HELOC is a better option versus Cash Out Refinancing

  • Funds from a HELOC remain available for the length of a draw period with just a one time closing cost, while a Cash Out Refi only allows for one time funding access

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*Fixed rate home equity line of credit: Loan has a draw period of 10 years, followed by a repayment period. Interest only payments during the 10-year draw period and will be re-amortized at the time the repayment period begins. If interest only payments are made during the draw period, the loan balance will not decrease.

Variable rate home equity line of credit: Credit Union of Texas offers a variable Annual Percentage Rate (APR) based on the Prime Rate as published in the Money Rates section of The Wall Street Journal (the “Index”) plus a margin based on creditworthiness and credit limit. As of July 27, 2023, the index value is 8.50% . The floor APR will be 3.00%. An increase in the Index will result in an increase in the periodic rate which, in turn, will result in higher payments. In no event, will the APR increase by more than 18% or the maximum rate allowed by applicable law.

The minimum advance during the draw period is $4,000. Property insurance is required, including flood insurance where applicable. Texas homestead properties are limited to 80% combined loan to fair market value for home equity financing. All loans are subject to credit approval and Credit Union of Texas lending policies. Other restrictions may apply. In Texas, there is a 12-day cooling off period on all HELOCs. There is also a three-day right of rescission after closing before the funds may be disbursed. Actual time of funding may differ depending on appraisal, title and other underwriting requirements. This is a limited time offer and is subject to change at any time without notice. The account is subject to application, credit qualification, and income verification; additional evaluation and verification criteria may apply. CUTX home loan programs are only available in Texas. Borrower will be responsible for certain closing costs which may include title insurance. Credit Union of Texas NMLS #576560. Membership required.