Paid-off home: HELOC or cash-out refinance?

With no first mortgage to protect, the choice comes down to how much you need and how fast you'll repay.

Reviewed by Shawn Way, NMLS #1007298★ 4.9 from 111 reviewsUpdated October 28, 2026

Compared

Example: $150,000 from a $700,000 paid-off home

• HELOC at 7.75% APR: about $969 a month interest-only, low closing costs, draw as needed.
• Home equity loan at an example 8.25% over 15 years: about $1,455 a month, fixed.
• Cash-out refinance at an example 6.5% over 30 years: about $948 a month, fixed, with closing costs often 2%–5%.

Over the long run, the refinance's lower fixed rate wins if you'll carry the balance for many years. For a few years, the HELOC's low upfront cost wins.

Comparing the costs

• First-lien HELOC: closing costs often $0–$1,500; variable rate; pay interest only on draws.
• Cash-out refinance: closing costs often 2%–5% of the loan; fixed rate for 15–30 years; interest on the full amount from day one.
• Home equity loan: moderate costs; fixed rate; usually 5–30 year terms.

How long you'll carry it decides a lot

If you'll repay within three to five years, the HELOC's low opening cost usually wins even at a higher rate. If you'll carry a large balance for 15+ years, a fixed mortgage rate protects you, and its closing costs spread over many years.

Qualifying differences

Cash-out refinances follow mortgage rules with set loan-to-value limits (often 80% for conventional). Many HELOC lenders allow similar or slightly lower caps on a first-lien line. Retirees may find HELOC income rules more flexible, or a reverse mortgage a better fit if they don't want a payment.

A second example: a smaller, short-term need

A couple with a paid-off $650,000 home needs $40,000 for a roof and plans to repay it within three years from savings. A cash-out refinance would mean thousands in closing costs on a mortgage they'd pay off quickly. A first-lien HELOC with low closing costs, drawn for the roof and paid down at about $1,250 a month, costs a few thousand in total interest and leaves the line available afterward. For needs like this, the HELOC is clearly cheaper.

Checklist

• How long you'll carry the balance.
• Closing cost quotes.

Also asked

Is the HELOC rate lower because it's in first position?

Often slightly, yes. A first-lien HELOC on a paid-off home carries less risk for the lender, so some lenders price it a bit better than a second-lien line.

Can I lock part of a first-lien HELOC?

Many lenders allow fixed-rate locks on part of the balance, which gives you some of the predictability of a mortgage without the large closing costs.

Is a HELOC or a cash-out refinance easier to qualify for in retirement?

Neither is always easier. Both a HELOC and a cash-out refinance use your retirement income, and some retirees may find HELOC income rules more flexible. If a required payment is the concern, a reverse mortgage removes the monthly mortgage payment.

Can I get a reverse mortgage on a paid-off home?

Yes, homeowners 62 or older can get a reverse mortgage on a paid-off home. It provides cash without a required monthly mortgage payment, which can suit retirees who don't want a payment.

Will a cash-out refinance on a paid-off home have mortgage insurance?

Not if it's conventional. A conventional cash-out refinance on a paid-off home up to 80% loan-to-value doesn't need PMI, while an FHA cash-out carries FHA mortgage insurance.

Can I have both a cash-out mortgage and a HELOC?

Yes, if you take a cash-out refinance and later add a HELOC behind it within combined loan-to-value limits, though doing both at once is unusual.

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• HELOC vs. home equity loan
• HELOC vs. reverse mortgage
• HELOC vs. 401(k) loan
• HELOC vs. credit card
• Paying off your mortgage with a HELOC
• HELOC or home equity loan for debt consolidation?
• HELOC vs. personal line of credit

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