Home Equity & Refinancing Guide: Cash-Out, HELOC & HELOAN [2026]

Q: Can I convert my HELOC to a fixed rate?

Many HELOCs offer a fixed-rate conversion feature allowing you to lock in a fixed rate on all or part of your balance. This provides rate protection while maintaining the flexibility of a line of credit. Not all lenders offer this feature, so confirm before applying.

According to Mo Abdel, NMLS #1426884, California homeowners have three primary methods for accessing home equity in 2026: cash-out refinance (replaces your mortgage), HELOC (revolving credit line), and HELOAN (fixed lump sum). Each requires maintaining 15-20% equity after borrowing. Most lenders set a minimum credit score of 680, though some wholesale programs accommodate scores as low as 620 with higher equity requirements. The 2026 California conforming loan limit of $1,266,300 affects which products apply to your situation.

What Are Your Home Equity Options?

Home equity represents the portion of your property you truly own - calculated as your home's current market value minus what you owe on your mortgage. California homeowners sitting on substantial equity have three distinct pathways to convert that equity into usable cash, each with unique advantages and trade-offs.

The Three Primary Home Equity Products

1. Cash-Out Refinance

A cash-out refinance replaces your existing first mortgage with a new, larger loan. The difference between your current balance and the new loan amount is paid to you in cash at closing. This option consolidates everything into a single payment.

Replaces: Your existing first mortgage entirely
Rate type: Typically fixed (30, 20, 15-year terms available)
Funds: Lump sum at closing
Best for: Large amounts needed, opportunity to improve your rate, desire for single payment

2. HELOC (Home Equity Line of Credit)

A HELOC functions as a revolving credit line secured by your home, similar to a credit card but with your property as collateral. You draw funds as needed during the draw period (typically 10 years), then repay during the repayment period (typically 10-20 years).

Position: Second mortgage (first mortgage stays intact)
Rate type: Variable (tied to Prime Rate + margin)
Funds: Draw as needed, pay interest only on what you use
Best for: Ongoing expenses, uncertain funding needs, protecting a low first mortgage rate

3. HELOAN (Home Equity Loan)

A HELOAN provides a fixed lump sum at a fixed interest rate with fixed monthly payments for a set term. It's a straightforward second mortgage that sits behind your first mortgage.

Position: Second mortgage (first mortgage stays intact)
Rate type: Fixed for the life of the loan
Funds: Lump sum at closing
Best for: Known one-time expense, desire for payment predictability, protecting a low first mortgage rate

Quick Comparison: Cash-Out vs HELOC vs HELOAN

Feature	Cash-Out Refi	HELOC	HELOAN
Replaces 1st Mortgage	Yes	No	No
Interest Rate Type	Fixed (usually)	Variable	Fixed
Fund Disbursement	Lump sum	Draw as needed	Lump sum
Typical Closing Costs	2-5% of loan	0-2% of line	2-5% of loan
Time to Close	30-45 days	2-4 weeks	2-4 weeks
Payment Flexibility	None	Interest-only option	None
Reusable Credit	No	Yes (draw period)	No

Home Equity Requirements 2026

Meeting lender requirements determines which products you qualify for and what terms you receive. Here's what California lenders expect in 2026:

Equity Requirements by Product

Product	Max LTV/CLTV	Min Equity After	Notes
Cash-Out (Conventional)	80% LTV	20%	Standard for primary residence
Cash-Out (FHA)	80% LTV	20%	Requires mortgage insurance
Cash-Out (VA)	100% LTV	0%	Eligible veterans only
Cash-Out (Jumbo)	70-80% LTV	20-30%	Varies by lender/amount
HELOC	80-90% CLTV	10-20%	Higher CLTV with strong credit
HELOAN	80-90% CLTV	10-20%	Similar to HELOC requirements

Credit Score Requirements

Credit Score Tiers for Home Equity Products (2026)

740+: Best available rates, maximum LTV options, fastest approvals
700-739: Competitive rates, full product access, standard terms
680-699: Minimum for most HELOCs, slightly higher rates
660-679: Limited options, higher rates, may need more equity
620-659: Select wholesale lenders, highest rates, requires 30%+ equity
Below 620: Non-QM options only, significantly higher rates

Documentation Checklist

Standard Documentation Required

Income Verification:

Recent pay stubs (30 days)
W-2 forms (2 years)
Tax returns (1-2 years)
Bank statements (2-3 months)

Property & Debt:

Current mortgage statement
Homeowners insurance
Property tax records
HOA statements (if applicable)

Cash-Out Refinance: Complete Deep Dive

After fifteen years helping California homeowners navigate equity decisions, I've found cash-out refinancing remains the go-to option when clients need substantial funds and their current mortgage rate is at or above market rates. The 2026 rate environment makes this calculation more nuanced than in previous years.

How Cash-Out Refinancing Actually Works

When you complete a cash-out refinance, your existing mortgage is paid off and replaced with a new, larger loan. The mechanics work like this: if you have a home worth $1,200,000 with a $500,000 mortgage balance, and you refinance at 80% LTV ($960,000), you receive approximately $460,000 in cash (minus closing costs, typically $15,000-$25,000 on this loan size).

The funds arrive via wire transfer within 3 business days of closing, following the required 3-day right of rescission period in California. There are no restrictions on how you use the proceeds - debt consolidation, home improvements, investment opportunities, or emergency reserves are all common uses.

Cash-Out Refinance Rate Structure in 2026

Cash-out refinancing carries a rate premium compared to rate-and-term refinancing. In early 2026, expect:

Conforming cash-out (up to $1,266,300): 0.25-0.50% premium over rate-and-term
Jumbo cash-out (above $1,266,300): 0.375-0.75% premium over jumbo rate-and-term
High LTV cash-out (above 70% LTV): Additional 0.125-0.25% adjustment

These premiums exist because lenders view cash-out loans as higher risk - you're increasing your debt load rather than just restructuring existing debt.

When Cash-Out Makes Strategic Sense

I recommend cash-out refinancing in these specific scenarios:

Your current rate exceeds market rates: If you're at 7.5% and can refinance to 6.75% while pulling cash, the math works in your favor even with the premium.
You need $150,000+ and want one payment: For large amounts, the closing costs become proportionally smaller, and managing a single payment simplifies your finances.
You want to consolidate a first and second mortgage: Combining a first mortgage and existing HELOC/HELOAN into one new loan at a competitive rate streamlines your debt.
You're doing major home improvements: Large renovation projects often justify cash-out, especially when improvements increase property value.

Cash-Out Refinance Costs Breakdown

Closing costs on cash-out refinances typically run 2-3% of the loan amount for conforming loans and 2-4% for jumbo loans. Here's a realistic breakdown for a $750,000 cash-out refinance:

Cost Category	Typical Range	Example ($750K loan)
Origination Fee	0-1%	$0-$7,500
Appraisal	$600-$1,200	$800
Title Insurance	0.5-1%	$3,750-$7,500
Escrow/Settlement	$1,500-$3,000	$2,000
Recording Fees	$75-$200	$125
Credit Report	$50-$100	$75
Total Estimate	2-3%	$15,000-$22,500

HELOC: Complete Deep Dive

HELOCs have experienced a renaissance among my California clients, particularly those who locked in sub-4% first mortgage rates during 2020-2021 and refuse to sacrifice them. The flexibility of drawing only what you need, combined with preserving your first mortgage, makes HELOCs the preferred choice for ongoing or uncertain funding needs.

Understanding HELOC Structure

A HELOC consists of two distinct phases that fundamentally change your payment experience:

Draw Period (Typically 10 Years)

Access your credit line as needed, like a credit card
Minimum payments are often interest-only
Pay down and re-borrow repeatedly
Your available credit replenishes as you pay down

Repayment Period (Typically 10-20 Years)

No more draws allowed - line converts to a loan
Payments include principal and interest
Monthly payments increase significantly
Balance amortizes over remaining term

HELOC Interest Rate Mechanics

HELOC rates are calculated as Prime Rate + Margin. The Prime Rate (currently 8.50% as of early 2026) serves as the base, and your margin (typically 0.5% to 2.5%) is determined by your credit profile and lender.

Example calculation: Prime Rate (8.50%) + Margin (1.00%) = 9.50% variable rate

This rate adjusts monthly as the Prime Rate changes. When the Federal Reserve cuts rates, your HELOC rate drops; when they raise rates, it increases. This variability creates both opportunity and risk.

HELOC Fixed-Rate Conversion Feature

Many modern HELOCs include a fixed-rate conversion option, allowing you to lock in a fixed rate on all or part of your outstanding balance. This provides a hedge against rising rates while maintaining the flexibility of the line of credit. Not all lenders offer this feature, so confirm availability before applying if this matters to you.

When HELOC Is the Right Choice

You have a fantastic first mortgage rate: If you locked 3.25% in 2021, a HELOC preserves that rate while still accessing equity.
Your funding needs are spread over time: Home renovations spanning 12-18 months, multiple college tuition payments, or business expenses that arise over time.
You want emergency backup funding: A HELOC costs nothing until you use it - perfect for financial safety net purposes.
You can handle variable rate risk: If a rate increase of 2-3% wouldn't strain your budget, HELOCs offer advantages over fixed options.

HELOAN: Complete Deep Dive

The home equity loan (HELOAN) occupies the middle ground between cash-out refinancing and HELOC, offering the fixed-rate predictability many borrowers want without replacing their first mortgage. I recommend HELOANs for clients who know exactly what they need and value payment certainty above all else.

HELOAN Structure and Terms

A HELOAN works like a traditional installment loan: you receive a lump sum at closing, have a fixed interest rate for the entire term, and make equal monthly payments until the loan is paid off. Terms typically range from 5 to 30 years.

HELOAN Key Characteristics

Fixed rate: Locked in at closing, never changes
Fixed payment: Same payment amount every month
Fixed term: 5, 10, 15, 20, or 30-year options typically
No re-draw: Once funds are disbursed, you cannot borrow more
Second lien: Sits behind your first mortgage

HELOAN Rate Environment 2026

HELOAN rates in early 2026 typically run 0.5-1.5% higher than first mortgage rates due to their second-lien position. A borrower with 740+ credit might see:

10-year HELOAN: 7.75% - 8.50%
15-year HELOAN: 8.00% - 8.75%
20-year HELOAN: 8.25% - 9.00%

Shorter terms carry lower rates but higher monthly payments. Your optimal term depends on your monthly budget and how quickly you want to be debt-free.

When HELOAN Is the Right Choice

You want to protect your first mortgage rate: Like HELOC, a HELOAN preserves your existing first mortgage terms.
You know exactly how much you need: For a defined expense like a pool installation ($75,000) or kitchen remodel ($120,000), a HELOAN makes sense.
You prefer payment predictability: If variable rates make you uncomfortable, the fixed HELOAN payment provides peace of mind.
You want forced principal paydown: Unlike interest-only HELOC payments, every HELOAN payment reduces your balance.

Comparison & Decision Framework

Choosing between cash-out refinance, HELOC, and HELOAN requires evaluating your current mortgage situation, funding needs, risk tolerance, and time horizon. Here's how to make the decision:

Decision Tree: Which Product Fits Your Situation?

Start here: What's your current first mortgage rate?

If your rate is ABOVE current market rates (can improve your rate):

Need large lump sum? Cash-Out Refinance
Want to consolidate multiple debts? Cash-Out Refinance
Prefer one simple payment? Cash-Out Refinance

If your rate is BELOW current market rates (want to keep your rate):

Ongoing or uncertain expenses? HELOC
Want flexible access + emergency backup? HELOC
Known one-time expense? HELOAN
Want fixed payment certainty? HELOAN

Total Cost Comparison Example

Let's compare accessing $200,000 in equity three different ways for a homeowner with a $1.2M home and $400,000 current balance at 3.5%:

Factor	Cash-Out Refi ($600K)	HELOC ($200K)	HELOAN ($200K)
New Rate	6.75% fixed	9.50% variable	8.50% fixed
Lost 3.5% Rate?	Yes	No	No
Closing Costs	$15,000	$2,500	$6,000
Monthly Payment	$3,890	$1,580* + $1,795**	$1,566 + $1,795**
5-Year Total Cost	$248,400	$209,500	$208,660

*HELOC interest-only on $200K; **Original first mortgage payment at 3.5%

In this scenario, keeping the 3.5% first mortgage with a HELOC or HELOAN saves approximately $40,000 over 5 years compared to cash-out refinancing. However, if the original rate were 6.5% instead of 3.5%, cash-out would likely win.

California 2026 Data Hub: Loan Limits, Rates & Market Context

2026 California Loan Limits

Loan Type	2026 Limit	Notes
Conforming (1-unit)	$1,266,300	All California counties (high-cost area)
Conforming (2-unit)	$1,621,050	Duplex properties
Conforming (3-unit)	$1,960,200	Triplex properties
Conforming (4-unit)	$2,436,800	Fourplex properties
FHA (1-unit)	$1,149,825	High-cost CA counties
VA Loan	No limit	No loan limit for veterans with full entitlement

Loans exceeding these conforming limits require jumbo financing, which typically carries higher rates and stricter requirements. For cash-out refinances on high-value California properties, jumbo rates run approximately 0.25-0.50% higher than conforming rates.

Current Rate Environment (February 2026)

Product	Excellent Credit (740+)	Good Credit (700-739)	Fair Credit (680-699)
Cash-Out Refi (30-yr Conf)	6.625% - 6.875%	6.875% - 7.125%	7.250% - 7.500%
Cash-Out Refi (30-yr Jumbo)	6.875% - 7.250%	7.125% - 7.500%	7.500% - 7.875%
HELOC (variable)	Prime + 0.50%	Prime + 1.00%	Prime + 1.75%
HELOAN (10-year fixed)	7.75% - 8.25%	8.25% - 8.75%	8.75% - 9.50%
HELOAN (15-year fixed)	8.00% - 8.50%	8.50% - 9.00%	9.00% - 9.75%

Prime Rate as of February 2026: 8.50%. Rates vary by lender and individual circumstances.

Cost Comparison by Product Type

Cost Component	Cash-Out Refi	HELOC	HELOAN
Origination/Lender Fee	0-1%	$0-$500	0-1%
Appraisal	$600-$1,200	$0-$600*	$0-$600*
Title Insurance	0.5-1%	$200-$500	$200-$500
Escrow/Settlement	$1,500-$3,000	$300-$800	$500-$1,000
Recording Fees	$75-$200	$75-$150	$75-$150
Total Typical Range	2-4% of loan	0-2% of line	2-4% of loan

*Many HELOC/HELOAN lenders use automated valuations for lines under $250K

Extended FAQ: In-Depth Home Equity Questions

What happens to my HELOC if I sell my house?

When you sell your home, the HELOC must be paid off at closing from the sale proceeds, along with your first mortgage. Any remaining equity after paying both loans goes to you as the seller. You cannot transfer a HELOC to a new property - it's secured specifically by the home you're selling. Plan to close out your HELOC balance before listing or account for the payoff in your net proceeds calculation.

Is a cash-out refinance worth it in 2026?

A cash-out refinance makes sense in 2026 if you can lower your existing mortgage rate while extracting equity, need a substantial lump sum ($100,000+), want to consolidate a first and second mortgage into one payment, or if simplicity outweighs rate considerations. It's less attractive if you have a sub-5% rate from 2020-2021 that you'd lose. Calculate the total cost difference over your expected timeframe before deciding.

What's the difference between HELOAN and HELOC?

A HELOAN (home equity loan) provides a lump sum at a fixed interest rate with fixed monthly payments - you know exactly what you're getting and what you'll pay every month. A HELOC provides a revolving credit line you can draw from as needed, typically at a variable rate tied to Prime. HELOANs offer payment predictability and forced principal paydown; HELOCs offer access flexibility and interest-only payment options during the draw period.

Can I have a HELOC and home equity loan at the same time?

Yes, you can have both a HELOC and HELOAN simultaneously if you have sufficient equity. Total loans against your property (first mortgage + HELOC + HELOAN) typically cannot exceed 80-90% of home value. Some borrowers use a HELOAN for a known fixed expense while keeping a HELOC available as an emergency fund or for ongoing expenses that arise later.

Do I need an appraisal for a HELOC?

Many HELOCs use automated valuation models (AVMs) instead of full appraisals, especially for credit lines under $250,000. AVMs use comparable sales data and algorithms to estimate your home's value, saving you $600-$1,000 in appraisal fees. Larger credit lines, unusual properties, or rural locations may require a full in-person appraisal. Your lender determines the valuation method during the application process.

How does a HELOC affect my credit score?

Opening a HELOC may initially cause a 5-15 point dip due to the hard inquiry and new account opening. However, HELOCs are typically reported as installment loans (not revolving credit), which affects utilization differently than credit cards. Maintaining a low utilization rate (using less than 30% of your credit line) and making on-time payments can actually improve your credit score over time.

Can I deduct the interest on a home equity loan?

Interest on home equity debt may be deductible if the funds are used to "buy, build, or substantially improve" the home securing the loan. This means using a HELOC for a kitchen remodel is potentially deductible, but using it to pay off credit cards or buy a car is not. The combined mortgage interest deduction limit is $750,000 for mortgages taken out after December 15, 2017. Consult a tax professional for your specific situation.

What happens if home values drop after I get a HELOC?

If your home value drops significantly, your lender may freeze or reduce your HELOC credit line to maintain acceptable loan-to-value ratios. You'd still owe any balance you've drawn, but you may not be able to access additional funds until equity is restored. Some lenders periodically review property values and adjust credit lines accordingly. This risk makes it important not to over-leverage your equity.

Can I refinance my HELOC into a fixed-rate loan?

Yes, you have several options: (1) Use your HELOC's built-in fixed-rate conversion feature if available, (2) Refinance the HELOC into a new fixed-rate HELOAN, (3) Do a cash-out refinance that pays off both your first mortgage and HELOC, creating one new fixed-rate loan. Option 3 only makes sense if you can match or improve your first mortgage rate.

How soon can I get a HELOC after buying a house?

Most lenders require a "seasoning" period of 6-12 months after purchase before approving a HELOC. This allows time to establish payment history and for any value appreciation since purchase. Some lenders may approve HELOCs sooner if you made a substantial down payment (40%+) and can document the equity position clearly. A few lenders offer immediate second mortgages, but these typically have higher rates.

What documents do I need for a home equity loan?

Standard documentation includes: pay stubs (most recent 30 days), W-2 forms (past 2 years), federal tax returns (1-2 years for self-employed), bank statements (2-3 months), current mortgage statement, homeowners insurance declarations, and property tax information. Self-employed borrowers may need profit and loss statements and business tax returns. The lender will also run a credit check and order a property valuation.

Can I pay off my HELOC early without penalty?

Most HELOCs allow early payoff of the drawn balance without prepayment penalty. You can pay down the balance at any time and draw again during the draw period. However, some HELOCs charge an early termination fee (typically $300-$500) if you close the entire line within the first 2-3 years. Check your specific loan terms for any early closure fees before signing.

What is the risk of using home equity for investments?

Using home equity for investments creates a collateral risk - if the investment loses value, you still owe the equity debt secured by your home. Unlike margin debt or personal loans, defaulting on equity debt can result in foreclosure. This risk makes home equity appropriate only for conservative, well-researched investments by borrowers with strong income to cover payments regardless of investment performance.

How do wholesale mortgage brokers find better HELOC rates?

Wholesale mortgage brokers access institutional pricing from 50+ lenders simultaneously - rates reserved for volume producers rather than retail customers. By comparing multiple lenders' offerings against your specific profile (credit score, LTV, loan amount), brokers identify which lender offers the most competitive terms for your situation. This shopping advantage, combined with lower overhead than bank branches, typically results in rates 0.25-0.50% below retail offers.

Expert Summary: Choosing Your Best Equity Option

After helping hundreds of California homeowners access their equity, I've found that the "best" product depends entirely on your individual circumstances. Cash-out refinancing works when you can improve your rate while extracting equity. HELOCs excel for preserving low first mortgage rates with flexible access needs. HELOANs provide the certainty of fixed payments for defined expenses.

The 2026 rate environment - with conforming limits at $1,266,300 and many homeowners sitting on sub-4% first mortgages from 2020-2021 - makes the HELOC vs. cash-out decision particularly nuanced. A thorough analysis of your current rate, funding needs, risk tolerance, and time horizon determines the optimal path.

As a wholesale mortgage broker, I compare options from 50+ lenders to identify not just which product suits your situation, but which lender offers the most competitive terms for your specific profile. This comparison shopping consistently saves California homeowners thousands in interest costs over the life of their equity financing.

Ready to Access Your California Home Equity?

Get a personalized analysis comparing cash-out refinance, HELOC, and HELOAN options based on your specific situation. I'll evaluate your current mortgage rate, equity position, and goals to recommend the optimal path forward.

Get Your Free Equity Analysis Call (949) 822-9662

Related Home Equity & Refinancing Resources

Mo Abdel | NMLS #1426884 | Lumin Lending, Inc. | NMLS #2716106 | DRE #02291443
Licensed in: CA, WA, CO

Equal Housing Lender. All loans subject to credit approval, underwriting guidelines, and program availability. Terms and conditions apply. This is not a commitment to lend. Rates shown are for illustrative purposes and subject to change without notice. Information is for educational purposes only and does not constitute financial advice. Contact a licensed loan officer for personalized guidance. Consult a tax advisor regarding the deductibility of mortgage interest.