Quick Definitions

A cash-out refinance replaces your existing mortgage with a new, larger one — you walk away with the difference in cash. One loan, one payment, fixed or variable rate, 15–30 year term.

A HELOC (Home Equity Line of Credit) is a second mortgage. Your first mortgage stays in place; the HELOC sits behind it. You're approved for a credit line (e.g. $100,000) and can draw on it as needed during a "draw period" of typically 10 years, then repay it over a 20-year repayment period.

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The Single Most Important Variable

What's your current first-mortgage rate? If it's at 3–4%, a cash-out refi destroys that low rate. HELOC almost always wins in that case.

Interest Rates

  • Cash-out refi: Fixed or ARM. Usually 0.125–0.25% higher than a no-cash-out refinance at the same LTV.
  • HELOC: Almost always variable, indexed to the Prime Rate plus a margin. Higher than first mortgage rates — often Prime + 0.50% to Prime + 2.00%.

Today (May 2025), Prime is around 8.5%, so HELOC rates often run 8.5%–10%. Cash-out fixed rates run 6.75–7.5%. So the math favors cash-out on the rate side.

8.5%+
Typical HELOC rate
7%
Typical cash-out rate
$500–$1.5K
HELOC closing costs
$4–8K
Cash-out closing costs

Closing Costs

  • Cash-out refi: Full closing costs — $4,000–$8,000 on a typical Florida loan, including title insurance and state taxes on the entire new loan amount.
  • HELOC: Often $500–$1,500. Some banks offer no-closing-cost HELOCs (with a clawback if you close the line within 3 years). State taxes apply only to the credit line, and sometimes only to the drawn amount.

Flexibility

This is where HELOCs shine. You only pay interest on what you've drawn. Need $40,000 next month for a renovation, then nothing else for two years? Draw $40K. Pay interest only on $40K. Cash-out refi gives you the full lump sum at closing — and you pay interest on all of it from day one.

If your need is uncertain in timing or amount (multi-phase renovation, emergency reserve, business runway), HELOC wins on flexibility.

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Florida Tax Treatment

Both products pay state doc stamp and intangible tax, but HELOC taxes often apply only to the credit line (sometimes only the drawn amount), while cash-out pays on the entire new loan.

The Key Question: Your Existing Rate

The single most important variable: what rate is your existing first mortgage?

  • If you locked a 3% mortgage in 2020–2021, a cash-out refi would replace that low rate with today's 7%+ rate — a disastrous trade. HELOC wins decisively.
  • If your current rate is at or above today's rates, cash-out can make sense — particularly if you'll use the cash quickly.

Tax Treatment

Identical for both, with the same restriction: interest is only deductible if the borrowed funds are used to buy, build, or substantially improve the home that secures the loan. HELOC interest used for credit card consolidation, college, or vacations is not federally deductible.

Not sure which makes sense for you? We'll run both side-by-side.

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When to Use Each

Choose cash-out refi if:

  • Your current first mortgage rate is at or above today's rate
  • You need a large lump sum (full down payment on another property, major renovation contracted out)
  • You want a single payment and fixed-rate predictability
  • You'll use the cash within 12 months

Choose HELOC if:

  • Your current first mortgage rate is meaningfully below today's rate
  • You need ongoing access to capital over years (phased renovation, business working capital)
  • You want minimal closing costs
  • You may not use the full amount

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