HELOC vs. Cash-Out Refinance — compare home equity options

The calculator below shows both options on the same scenario: payment changes, closing costs, lifetime interest, and whether the cash-out refi forces you to give up a favorable existing rate. The "winner" pill goes to the option with lower total cost over a 10-year horizon. Adjust your inputs to see how the comparison shifts.

Your situation

Current home value$600,000

$

Current mortgage balance $300,000

$

Existing rate 5.50%

%

Years remaining on existing 25

yrs

Cash you need$80,000

$

Cash-out refinance terms

Refi rate offered 6.85%

%

Refi term 30 yrs

yrs

Refi closing costs 2.5%

%

HELOC terms

HELOC initial rate 9.50%

%

HELOC closing costs $500

$

HELOCs are typically interest-only for the first 10 years (the "draw period"), then amortize over the following 20 years. Rates are usually variable, tied to prime + a margin. The calculator models the 10-year draw period — your actual rate exposure depends on Fed policy.

Side-by-side on your numbers

Status quo (existing mortgage, no equity extraction)

Existing P&I: $1,842/mo LTV now: 50%

Option A · Cash-out refi

Replace the whole loan

New loan amount$389,500

New rate6.85%

New LTV65%

Closing costs$9,500

New monthly P&I$2,552

Payment change+$710/mo

$94,697

Total extra cost over 10 years (vs. status quo)

Includes ${

Option B · HELOC

Add a second line of credit

HELOC amount$80,000

Initial rate9.50%

Existing mortgage5.50% (unchanged)

Closing costs$500

HELOC interest-only payment$633/mo

Combined monthly$2,476/mo

$76,500

Total extra cost over 10 years (vs. status quo)

Assumes rate stays at the initial level. If prime rises, HELOC payment rises with it.

Estimates only. "Total cost over 10 years" is the additional interest paid versus keeping your existing mortgage unchanged. HELOC is modeled as interest-only during the 10-year draw at the initial rate. Cash-out refi is modeled as fully amortizing at the new rate. Real-world HELOC rate movement and refi closing cost detail will vary; this comparison is for orientation, not commitment.

Reading the comparison

The decision usually isn't about HELOC vs. refi — it's about your existing rate.

If you're trying to extract home equity, two things matter most for picking the right tool: the rate on your existing first mortgage and what you'll do with the cash. Almost everything else is detail.

The rate question

Cash-out refinance replaces your entire first mortgage with a new one at today's rate. If you locked in 2020-2022 at 3.0-4.5%, today's 6.5-7.0% cash-out refi rates mean you're giving up the favorable existing rate on the entire balance — not just the new cash. On a $300,000 existing balance, refinancing from 4% to 7% costs about $530/month more in P&I before factoring in any cash extraction at all.

HELOC leaves your existing first mortgage untouched. You keep the favorable rate on the existing balance and only pay the higher HELOC rate on the smaller cash amount. For most borrowers with sub-5% existing rates, this asymmetry makes HELOC the clear winner regardless of HELOC's own higher rate.

The cash-out refinance starts to win when your existing rate is above current refi rates. If you're sitting on a 7.5% mortgage and refi rates are 6.5%, cash-out refi refinances your existing balance to the better rate while extracting cash — two transactions in one.

The use-of-funds question

For short-term cash needs (under 3 years), HELOC's interest-only structure during the draw period keeps monthly payments low even at the higher rate. You're paying interest, not principal — fine if you plan to pay off the line soon from a future asset sale, business cash flow, or refinance.

For long-term cash needs (home renovation that adds permanent value, college tuition over 4-6 years), the math depends more on the total interest exposure. HELOC's variable rate is a risk over long periods; cash-out refi's fixed rate is certain. The trade-off between fixed-and-higher vs. variable-and-uncertain is partly a math decision and partly a risk-tolerance decision.

Where do-nothing fits

For renovations under $50,000 that can wait 1-3 years, saving the cash from income usually beats both equity options. The math: $50,000 saved over 30 months from a $2,000/month savings rate avoids both HELOC interest (~$14,000 over 10 years at 9.5% if you'd kept the line drawn) and cash-out refi closing costs ($5,000-$15,000) and the rate exposure entirely. Don't underweight this option just because it doesn't show on the comparison chart.

What the calculator is and isn't doing

The "10-year extra cost" number is the additional interest paid versus keeping the existing mortgage unchanged. It's not the total cost of the project — that includes the principal repayment too. The calculator is showing the marginal cost of using equity, which is the right number for an equity-vs-equity comparison. HELOC interest is modeled at the initial rate held constant. In reality, HELOC rates float; over a 10-year draw period, expect 1.0-3.0 percentage points of movement in either direction depending on Fed policy. If you want a stress scenario, raise the HELOC rate input by 1-2 points and re-run.

Frequently asked

Common questions about equity extraction.

What's the main difference between a HELOC and a cash-out refinance?

A cash-out refinance replaces your existing first mortgage with a new, larger mortgage at today's rate, giving you the difference in cash. A HELOC leaves your first mortgage untouched and adds a second line of credit secured by your equity. The structural difference matters: cash-out refi forces you to give up your existing first-mortgage rate (a problem if you locked at a low rate); HELOC preserves it. Cash-out refi has higher closing costs ($5,000-$15,000) but a single fixed payment. HELOC has minimal closing costs ($0-$1,500) but a variable rate that fluctuates with prime.

Which option is cheaper?

Depends primarily on your existing first-mortgage rate. If you locked in 2020-2022 at sub-5%, HELOC is almost always cheaper because cash-out refi forces you to refinance the entire balance at today's higher rate. If you have a high-rate existing mortgage (7%+) and refi rates are meaningfully lower, cash-out refi can win because you're refinancing the existing balance to a better rate AND extracting cash in one transaction. The calculator above models both on your specific numbers.

How does HELOC interest work?

HELOCs are typically structured with a 10-year draw period during which you make interest-only payments, followed by a 20-year repayment period during which the line amortizes. The rate is usually variable, tied to the prime rate plus a margin (typically prime + 0.5% to 2.0%). When the Fed adjusts the federal funds rate, prime moves, and your HELOC payment changes within 1-2 billing cycles. This is meaningful rate exposure — a HELOC priced at 9.5% today could be at 11% or 7% next year depending on Fed policy.

What about a home equity loan (HELOAN)?

A home equity loan (HELOAN) is a fixed-rate second mortgage — same idea as a HELOC structurally, but at a fixed rate over a fixed term (typically 5-20 years). Rates are higher than HELOC initial rates but predictable. If you know you need a specific dollar amount today and want payment certainty, a HELOAN often beats a HELOC. This calculator compares HELOC and cash-out refinance specifically because they're the two most-asked-about options; if a HELOAN is on your shortlist, treat it as "HELOC with a fixed rate and no draw period" — the rate is typically 0.5-1.0 points above the HELOC initial rate but fixed for the full term.

Will my closing costs be the same as the calculator shows?

The calculator uses representative defaults — 2.5% of new loan amount for cash-out refi closing, $500 for HELOC — but your actual costs will vary. Cash-out refi closing typically runs 2-4% of the new loan amount and includes lender origination, title insurance, appraisal, and prepaid escrow setup. HELOC closing varies wildly: some lenders charge nothing, some charge $200-$1,500. Get the actual numbers from a Loan Estimate (cash-out refi) or HELOC application disclosure before committing. The relative ranking between options rarely changes; the dollar amounts do.

Is the interest tax-deductible?

Generally only if used to buy, build, or substantially improve the home that secures the loan. The 2017 Tax Cuts and Jobs Act limited home equity loan and HELOC interest deductibility to those specific uses. Using a HELOC or cash-out refi for debt consolidation, car purchases, or general spending makes the interest non-deductible. Even when interest IS deductible, you need to itemize to benefit, and many households now take the standard deduction. Don't make this decision based on tax treatment without confirming with a tax professional. The calculator above shows pre-tax cost, which is the right baseline.

What if I just keep the existing mortgage and save up the cash separately?

Often the right answer if the project can wait 1-3 years. Extracting equity converts unsecured opportunity (no debt, full optionality) into secured debt at whatever the cheaper option costs you. For a $30,000-$50,000 renovation, saving up over 2-3 years from income avoids $5,000-$25,000 in lifetime interest and closing costs. For larger projects ($75K+) or urgent capital needs (medical emergencies, time-sensitive investment), waiting isn't realistic and the comparison between HELOC and cash-out matters more.

Related calculators & guides

Adjacent decisions on the same equity.

Calculator

Refinance vs. Keep

If your existing rate is well above market, a straight rate-and-term refi (without cash-out) may make sense regardless of equity needs.

Decision walkthrough

Should I refinance now?

The four options when rates fall — refinance, recast, extra payments, do nothing — with break-even math on a real loan.

Rates

Current mortgage rates

The Freddie Mac PMMS averages. Useful as a sanity check on the cash-out refi rate any lender is quoting you.

Risk

Leverage and housing

Why higher LTV concentrates downside risk. Equity extraction raises LTV and amplifies any subsequent home-value decline.

Risk

How to reduce risk

Where equity extraction fits in the cash-priorities stack: reserves first, then debt management, then equity decisions.

Reference

Glossary

HELOC, HELOAN, draw period, cash-out, LTV — every equity term defined plainly.

From comparison to commitment

Run the math on your numbers, then get formal quotes.

The calculator above orients you. The actual decision happens with a Loan Estimate (cash-out refi) or HELOC application disclosure from real lenders. Run the comparison with three lenders before committing — pricing varies meaningfully even on the same product.

How to choose a lender Current rates All calculators

HELOC vs. Cash-Out Refinance.