First Lien HELOC or Cash Out Refinance?

Updated as of January 2, 2024 |

Whats the best way to access my equity?

Whether one is looking to finance home upgrades, or needs capital for investment in another area of life, a Cash Out Refinance has been a standard tool through which home owners can tap into their home’s accumulated equity. 

But what if there are other options that provide a lower cost to way to access equity without additional underwriting, closing costs, or strict loan terms?

This article helps educate you on where you might want to use a 1st Lien HELOC in place of a Cash Out Refinance.

Defining "what is a Cash Out Refinance?"

When a homeowner is looking to access their capital gained as equity in their home, a common financial tool is the “Cash-Out Refinance”. As you continue to make payments on your mortgage, you gain equity in your home. Equity refers to the amount of a home’s value that you’ve actually paid off, and generally has a linear relationship to your mortgage’s principal balance. You can gain equity in two ways:

  1. Your home increases in value.
  2. You pay down your mortgage principal through your monthly mortgage payments. 

A cash-out refinance is a type of refinance option that gives access to the equity you’ve built over time and gives you cash in exchange for taking on a larger mortgage loan.

Basically, with a cash-out refinance, you borrow more than you owe on your mortgage and pocket the difference.

Traits of Cash-Out Refinancing

Unlike when you take out a second mortgage, a cash-out refinance doesn’t add another monthly payment to your list of bills – you pay off your old mortgage and replace it with your new mortgage.

When would you generally use a Cash-Out Refinance?

There are many ways that one would use a Cash-Out Refinance, but generally the most popular include:

  1. Home Upgrades & Additions
  2. Consolidating Debt to a lower interest rate
  3. Paying for large ticket items like a car or College Tuition

Why is a 1st Lien HELOC a better tool to access equity than a Cash-Out Refinance?

If you’re an existing homeowner looking to access your equity through a refinance or a 2nd mortgage, then you’re aware that you’ll need to go through a lender’s underwriting process again. This means that you’ll end up needing another appraisal, will need to submit your financial documents, and will end up having to pay additional closing costs.

But instead of locking yourself back into another Mortgage, you can actually replace your mortgage with a 1st Lien HELOC and yield the benefits of a more flexible financial tool.

Why choose a 1st Lien HELOC over a Cash-Out Refinance?

It’s simple.

A 1st Lien HELOC allows you to borrow as little or as much as you like without additional underwriting or financial barriers to access.

Also, a 1st Lien HELOC, with its sweep account, makes it even easier to pay back your principal debt without additional fees or an amortization schedule that forces you to pay interest upfront. When combined with Velocity Banking, a 1st Lien HELOC becomes one of the most powerful home loan options that provide maximum flexibility and maximize cashflow efficiency.

Key differences between a 1st Lien HELOC and a Cash-Out Refinance






1st Lien HELOC

Average Daily Balance

In or Out

10 year

Up to 1.5m

Cash Out Refinance

Amortized Schedule


15, 20, 30 year

Up to 600k

Its’ important to keep in mind that a 1st Lien HELOC is meant to be an all-in-one financial tool that allows one the most flexibility in leveraging their cashflow, equity, and financial assets to use capital as needed. A Cash-Out Refinance is just a larger Mortgage than what you currently have, and still retains the strict amortization schedule that is common for any Mortgage Loan. 

As more and more American’s are discovering the power of a 1st Lien HELOC, you too may want to explore the financial benefits to refinancing into a 1st Lien HELOC. Looking to see how much you could save? Try our new First Lien HELOC calculator.

Benefits of HELOC

A 1st Lien HELOC offers several benefits. You can circulate your money at will. Your interest calculation comes from the average balance of what you owe every day.

Since you are able to get at your funds as needed, you only have to pay the interest each month. The HELOC acts as a line of credit. You can pay money in or draw money out as your needs dictate.

These items matter because they provide tremendous flexibility and value to the homeowner. A traditional mortgage is a rigid obligation. While a HELOC allows homeowners to:

  • Access capital
  • Consolidate debt
  • Pay down the principal balance


The first-lien HELOC is a good first option for those who want to use their home equity as collateral. First-lien HELOCs have lower interest rates than first-lien cash-out refinancing. 1st Lien HELOCs have first priority over first-lien cash-out refinancing.

This is because first-lien HELOCs are first mortgages and cash-out refinances are second.

Interest Calculation

The calculation for HELOC’s interest rate is different than traditional mortgages. Knowing this difference can save you a lot of money by paying down your principal faster.

Traditional mortgages use the amortized interest calculation. This means that they use what you owe last month to calculate your next month’s interest payments. This forces you to pay the highest amount of interest.

HELOCs use the average daily balance to calculate interest payments. Daily calculations of your interest payment include that day’s amount of money. By decreasing your balance each day, you decrease how much you pay over time.

Taking Advantage of the HELOC model

Many people use a HELOC to pull some equity out of their home to cover a new or second home’s down payment. Others use it to pay down principal interest at a faster rate. Then there are those who use it to consolidate their higher interest rate debts.

Some even use their equity to invest in real estate.

In all cases, individuals use their equity to advance their future. Contact us if you’d like clarity on the difference between a 1st Lien HELOC and cash-out refinance. We’ll be happy to help you discover which financial vehicle is best for your situation.

Achieve Financial Freedom

Sign up on to get connected with a licensed lender who can deliver an all-in-one 1st Lien HELOC. They’ll walk you through the application process and help outline your budget, your numbers, and exactly how much you can save by replacing your mortgage.