This calculator provides estimates for educational purposes only. It is not affiliated with any bank, lender, or financial institution. Results are not a loan offer or guarantee of terms. Consult a licensed mortgage professional for advice specific to your situation.
HELOC vs Cash-Out Refinance
The decision between a HELOC and a cash-out refinance depends almost entirely on your existing first-mortgage rate. If your existing rate is below current market rates, a HELOC almost always wins because the cash-out refi would refinance your existing balance into a worse rate. If your existing rate is at or above current market, the cash-out refi often wins.
The decisive question: what is your existing first-mortgage rate?
Most personal-finance writing on HELOC versus cash-out refinance treats the decision as a comparison of headline rates: HELOC at 7.02% versus cash-out refi at 6.50% in May 2026 suggests the refi wins. But this comparison ignores the largest cost component for most borrowers: the existing first mortgage. A cash-out refinance replaces the entire existing first mortgage with a new larger first mortgage. Borrowers who took out their first mortgage in 2020 to 2022 at rates of 2.75% to 4.00% would have to refinance that low-rate balance into the current 6.50% rate as part of any cash-out transaction. The cost of doing that on a $400,000 first mortgage at 3.5% replaced with $475,000 at 6.50% is an extra $12,000 to $14,000 of annual interest on the existing balance alone, before counting any benefit from the $75,000 of cash extracted.
For these borrowers, a HELOC at 7.02% on the incremental $75,000 of borrowing is the clearly cheaper option. The HELOC leaves the existing low-rate first mortgage in place and adds a separate higher-rate but small-balance HELOC. The blended cost of borrowing across the two facilities is much lower than refinancing the whole thing at current rates. The Federal Reserve's H.15 releaseand the Freddie Mac Primary Mortgage Market Surveyboth confirm the spread between current first-mortgage rates and the 2020 to 2022 vintage origination rates remains historically large. The HELOC-preferred regime is likely to persist for the duration of this rate cycle.
For borrowers whose existing first mortgage is at or above current rates (less common in 2026 but relevant for borrowers who took out adjustable-rate first mortgages in earlier cycles or who recently originated at peak rates in 2023), the cash-out refi often wins. The refi gets the existing balance into a current lower rate while extracting additional cash. The fee differential favours the HELOC by $4,000 to $12,000 in most cases, so the refi needs to produce at least that much rate savings on the existing balance to break even, then more to be a clear win. Run the math both ways before deciding.
A worked example: $400k first mortgage at 3.5%, want $75k cash
Consider a borrower with a 27-years-remaining $400,000 first mortgage at 3.50% from a 2021 origination, paying $1,796 per month principal and interest. They want $75,000 to fund a kitchen renovation. Two paths:
Path A (HELOC at 7.02%): keep the existing first mortgage untouched, add a $75,000 HELOC. Total monthly payment: $1,796 (existing first) plus $438 (HELOC interest-only at 7.02%) equals $2,234. Annual interest cost: $14,000 (existing first) plus $5,265 (HELOC) equals $19,265. Closing costs on the HELOC: typically $0 to $1,500.
Path B (cash-out refi at 6.50%): refinance the existing $400,000 into a new $475,000 first mortgage at 6.50% over 30 years. New monthly payment: $3,002. Annual interest cost in year 1: $30,475. Closing costs: typically $9,500 to $19,000 (2% to 4% of new loan amount). The cash-out refi increases the monthly payment by $768 and the annual interest cost by $11,210, plus the closing-cost differential of $9,500 to $17,500. The HELOC saves the borrower roughly $20,000 in year-1 cost and continues to save similar amounts annually for the life of the lower-rate existing first mortgage.
The HELOC wins decisively in this scenario, by an order of magnitude. The pattern holds for any borrower whose existing first-mortgage rate is more than about 100 to 150 basis points below current market. As current rates moderate (if the Fed cuts in coming years), the breakeven point may shift, but for the May 2026 rate environment, HELOC is almost always the better path for borrowers with low-rate existing first mortgages.
Decision matrix: HELOC vs cash-out refi by existing rate
| Existing first mortgage rate | Current cash-out refi rate | HELOC rate | Recommended path |
|---|---|---|---|
| 3.00% | 6.50% | 7.02% | HELOC (large win) |
| 4.00% | 6.50% | 7.02% | HELOC (large win) |
| 5.00% | 6.50% | 7.02% | HELOC (clear win) |
| 6.00% | 6.50% | 7.02% | Closer call, run math |
| 7.00% | 6.50% | 7.02% | Cash-out refi (clear win) |
| 8.00% | 6.50% | 7.02% | Cash-out refi (large win) |
Recommendations assume modest cash-out amount ($50k to $100k) and typical fee structures. For very large cash-out amounts (over $200k), the HELOC speed and lower fee advantage matter less and the cash-out refi's rate certainty becomes more valuable.
Non-rate factors that influence the decision
Beyond the rate-environment math, several non-rate factors influence the HELOC versus cash-out refi choice. Speed: HELOC closes in 5 to 35 days versus 30 to 60 days for the cash-out refi. If time is critical (auction purchase, narrow opportunity window), HELOC wins on speed regardless of other factors. Closing costs: HELOC typically $0 to $2,000 versus $8,000 to $20,000 for the cash-out refi. For small cash-out amounts (under $50,000) the closing-cost differential can dominate the rate comparison.
Flexibility: HELOC gives 10 years of revolving access to the credit line, useful for phased projects or uncertain future borrowing needs. Cash-out refi locks the cash at closing; future additional borrowing requires a new transaction. For ongoing or uncertain use, HELOC structure fits better. Payment structure: HELOC starts with interest-only minimum payments during the draw period, giving cash-flow flexibility. Cash-out refi starts with full amortizing payments from day one. For borrowers optimizing for low monthly payment early on, the HELOC's interest-only structure is appealing.
Risk profile: HELOC carries lender-discretion language permitting line freeze or limit reduction if home values drop or the borrower's credit deteriorates (Reg Z 1026.40(f)). Cash-out refi has no equivalent provision; once funded, the loan terms are locked. Borrowers who place high value on future line availability should prefer the cash-out refi for that reason alone. Borrowers who care primarily about immediate cost and have low concern about future availability can lean toward the HELOC.
Frequently asked questions
Which is cheaper, HELOC or cash-out refinance?
Depends entirely on your existing first-mortgage rate. If your existing first mortgage is at 5% or lower (typical for loans originated 2020 to 2022), a HELOC at 7.02% is almost always cheaper because the cash-out refi would refinance your existing low-rate balance into a 6.5% to 7% current first-mortgage rate. If your existing first mortgage is at 7% or higher, the cash-out refi often beats the HELOC on total cost.
What are the closing costs on each?
Cash-out refinance closing costs typically run 2% to 4% of the new loan amount, so $8,000 to $16,000 on a $400,000 refi. HELOC closing costs typically run 0% to 2%, so $0 to $4,000 on a $200,000 line, with many lenders waiving most costs entirely. The fee differential favours HELOC by $4,000 to $12,000 in most cases.
Does cash-out refi reset the amortization clock?
Yes. A cash-out refi replaces the existing first mortgage with a new 15 or 30-year loan, restarting the amortization clock. A borrower 8 years into a 30-year mortgage has 22 years remaining; the cash-out refi resets that to 30 years, extending total interest cost even at the same rate. A HELOC adds a separate amortization on the HELOC balance only, leaving the first-mortgage schedule untouched.
Which is faster to close?
HELOC is typically faster: 21 to 35 days at large banks, 5 to 14 days at digital lenders like Figure. Cash-out refinance typically takes 30 to 60 days because of the full first-mortgage underwriting required. For time-sensitive use cases, HELOC has a meaningful speed advantage.
Which is better for tax deductibility?
Both products allow interest deductibility under IRS Publication 936 only if the cash-out funds are used for home improvement and the borrower itemizes. The mechanics are identical: combined acquisition-debt cap of $750,000, fund-tracing required for the home-improvement use, no deduction for non-improvement uses. Cash-out refi interest deductibility is sometimes overstated; the same rules apply to both products.
Which one carries more risk if home values drop?
Cash-out refi locks the loan terms; the lender cannot freeze or reduce the loan if home values drop. HELOC carries explicit lender-discretion language under Reg Z 1026.40(f) allowing line freezes or limit reductions if home values decline materially or the borrower's credit deteriorates. For a borrower particularly concerned about future line availability, cash-out refi has clear contractual advantage.