A HELOC stands for a line of credit with a maximum amount that can be borrowed. A cash-out refinance is a refinancing that uses the equity in your home to increase the loan amount. In the more than several years that the loan lasts (called the “draw period”), you can borrow the amount you need, paying interest only on what you borrow. Moreover, many lenders only require borrowers to pay interest during the HELOC’s draw period. Your existing loan is replaced by a cash-out refinance. A larger new loan is applied for when you refinance your existing loan. Your old mortgage and closing costs are paid off by the new loan, and you’ll receive the difference in cash. Based on your new mortgage terms and balance, you’ll also receive a new mortgage payment each month.

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