Two of the most popular ways to tap California home equity are the HELOC and the cash-out refinance. They have different structures, costs, and use cases — here’s how to pick the right one.
How a HELOC Works
A Home Equity Line of Credit (HELOC) is a revolving line of credit secured by your home. You’re approved for a maximum limit (typically up to 80–85% of home value minus your first mortgage) and can draw, repay, and redraw during the draw period (usually 10 years). Interest is charged only on what you actually borrow.
Best for: Ongoing projects, unpredictable expenses, or when you want flexibility. Home renovations where you’re unsure of total cost are a classic HELOC use case.
California HELOC rates: HELOCs are variable rate (typically Prime + margin). With California home values, many borrowers access $200,000–$500,000+ at competitive rates.
How a Cash-Out Refinance Works
A cash-out refi replaces your existing first mortgage with a new, larger mortgage. You receive the difference in cash at closing. For example: you owe $500,000 on a home worth $1.2M. A new $800,000 mortgage pays off the old loan and delivers $300,000 cash.
Best for: Large lump-sum needs, consolidating debt, or if current mortgage rates are near or below your existing rate. Also appropriate when you want a fixed rate on the extracted equity.
Key Differences
| Feature | HELOC | Cash-Out Refi |
|---|---|---|
| Rate | Variable | Fixed or ARM |
| Closing costs | Lower ($500–$2,000) | Higher (2–3% of loan) |
| Payment structure | Interest-only draw, then P+I | Full P+I from day 1 |
| Access to funds | Ongoing draw | Lump sum |
| First mortgage | Unchanged | Replaced |
California-Specific Considerations
California’s Prop 13 means property taxes are assessed on original purchase price plus 2% annual increases. A cash-out refi does not trigger Prop 13 reassessment. However, if you’re over 55 and considering a move, Prop 19 portability rules matter — consult a tax advisor.
Questions about your California mortgage? Call DiVita Home Finance at (800) 239-1108 or schedule a free consultation. We’re Marin County-based mortgage brokers with 20+ years of California experience.
