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Cash-out refi vs HELOC
Your home, your rates, your cash need — the monthly, the closing costs, and the lifetime bill.
X VS Y COMPARISON · MONEY · HOUSING
Cash-Out Refinance vs HELOC: Which Wins?
You need cash and you have equity. Two doors: refinance the whole mortgage into a bigger loan and take the difference, or leave the mortgage alone and bolt on a HELOC. At the defaults — $500k home, $300k owed at 7.0% with 25 years left, $50k needed — the refi (6.5%, 30 years, 2% closing) drops the monthly payment to $2,212.24 against $2,554.25 for the HELOC path (an 8.5% line amortized over 20 years): a $342.01-a-month win for the refi. But the refi costs $7,000.00 at closing and resets the clock to 30 years — lifetime interest is $446,405.71 against $390,240.07: the HELOC wins by $56,165.64. One tool wins the month; the other wins the decade. Enter your numbers and read the 80% LTV test before you choose.
The 60-second rule
If your current mortgage rate is lower than the refi rate, the HELOC almost always wins — because the refi replaces your cheap rate on the entire balance, not just the cash you take out. That is the whole 2026 story in one sentence: most homeowners are sitting on rates from 2020–2022 that no refinance can touch, so the HELOC preserves the asset (your rate) while the refi destroys it. Only when your current rate is above the refi rate — or you want one fixed payment on everything — does the cash-out refi get interesting. The calculator quantifies exactly that trade.
How each side really works
Cash-out refinance. Your old mortgage is paid off and replaced with a bigger one: new balance = old balance + cash out. One fixed payment, usually a fixed rate, closing costs of roughly 2–6% of the new loan, and 30–45 days to close. The quiet cost: the new loan almost always resets the term — 25 years left becomes 30 years again — and you pay interest on the full amount from day one. Most lenders cap cash-out refis at 80% loan-to-value.
HELOC. Your first mortgage stays exactly as it is. The HELOC is a second lien — a revolving credit line, typically a 10-year draw period (interest-only payments common) followed by a ~20-year repayment period. Rates are usually variable (prime + margin), closing costs are low or zero, funding takes days, and you only pay interest on what you actually draw. The quiet costs: the rate can rise, payments jump when the draw period ends, and the lender can freeze the line if home values fall. HELOCs can sometimes reach 85–90% combined LTV.
The worked example, line by line
$500,000 home, $300,000 owed at 7.0% with 25 years remaining, $50,000 of cash needed. Refi terms: 6.5%, 30 years, 2% closing. HELOC: 8.5%, amortized over 20 years.
Cash-out refi: new loan $350,000.00. Monthly payment at 6.5%/30yr = $2,212.24. Closing costs = 2% × $350,000.00 = $7,000.00 out of pocket at signing. Lifetime interest = $2,212.24 × 360 − $350,000.00 = $446,405.71. New LTV = 70% — under the 80% cap, so the refi is available.
HELOC path: first mortgage untouched at $2,120.34/mo. The $50,000 line at 8.5% over 20 years costs $433.91/mo — total $2,554.25/mo across both payments, $342.01 more than the refi. But lifetime interest on the old mortgage ($336,101.28) plus the line ($54,138.79) = $390,240.07 — $56,165.64 less than the refi, because nothing resets to 30 years.
The verdict: the refi wins the month by $342.01; the HELOC wins the decade by $56,165.64 — and costs $7,000.00 less upfront. Flip the inputs: if your current rate were 3.5% instead of 7.0%, the refi would raise your rate on the existing $300,000 — the HELOC wins outright. If you pick the refi’s 20-year term, the payment rises to $2,609.51 but lifetime interest falls to $276,281.43: term choice is the real lever.
Output · formula · meaning
| Output | Formula | What it means |
|---|---|---|
| Refi monthly payment | PMT(rate/12, months, balance + cash) | $2,212.24 at the defaults — one fixed payment, everything rolled in. |
| HELOC-path monthly | old mortgage payment + line payment | $2,554.25 at the defaults — two payments, $342.01 more than the refi. |
| Upfront costs | new loan × closing-cost % | $7,000.00 refi vs roughly $0 HELOC at the defaults. |
| Lifetime interest | payment × months − principal, both paths | $446,405.71 refi vs $390,240.07 HELOC — the decade winner. |
| New LTV | (balance + cash) ÷ home value | 70% at the defaults — over 80% and most cash-out refis are off the table. |
Who uses this
- Low-rate holders: sitting on a 2020–2022 rate and wondering whether touching it is ever worth it (the calculator’s rate-protection branch answers in dollars).
- Renovation planners: comparing one fixed payment against a flexible draw they can repay and re-draw as the project evolves.
- Debt consolidators: checking whether rolling high-rate balances into the mortgage actually saves money once closing costs and the term reset are counted.
- Pre-retirees: anyone weighing a bigger 30-year payment against being mortgage-free sooner — the 20-year refi branch is built for this question.
Accuracy & limitations
Models fully amortizing payments with constant rates; the HELOC is simplified as an amortizing second lien, while real HELOCs usually start interest-only for ~10 years then jump at repayment — so real HELOC payments start lower and end higher than shown. Ignores tax deductibility (interest is deductible only when the money buys, builds, or substantially improves the home; the $750,000 combined debt cap applies), private mortgage insurance above 80% LTV, appraisal and annual fees, early-termination fees on some HELOCs, and rate risk on variable lines (lifetime caps are often 18%). The 80% LTV refi cap reflects typical conventional limits; FHA/VA and some portfolio lenders differ. Not financial advice.
Cite this calculatorBright Side Kit. “Cash-Out Refinance vs HELOC: Which Wins?.” brightoolbox.com, 2026.
Bright Side Kit. "Cash-Out Refinance vs HELOC: Which Wins?." https://brightoolbox.com/cash-out-refinance-vs-heloc/ Accessed October 23, 2026.Frequently asked questions
Should I do a cash-out refinance or a HELOC?
It depends on your current rate. If your existing mortgage rate is lower than the refi rate — true for most 2020–2022 borrowers — a HELOC almost always wins, because the refi would replace your cheap rate on the entire balance. If your current rate is higher than the refi rate, the refi becomes competitive: compare the monthly payment, the closing costs (2–6%), and the lifetime interest after the term reset. Run your numbers above.
How much does a cash-out refinance cost?
Closing costs run 2–6% of the new loan amount — at the defaults, 2% of $350,000.00 = $7,000.00 due at signing. That is the HELOC’s biggest head start: most HELOCs close with $0–$500 in fees. Divide the closing cost by the monthly savings to get your break-even in months.
What is the 80% LTV rule for cash-out refinances?
Most conventional lenders cap cash-out refinances at 80% loan-to-value: (balance + cash) ÷ home value must be ≤ 80%. At the defaults, $350,000.00 ÷ $500,000.00 = 70%, so the refi is available. Over 80%, the refi door closes and the HELOC (some reach 85–90% combined LTV) or a home equity loan is the remaining path.
Is HELOC interest tax deductible?
Only when the borrowed money is used to buy, build, or substantially improve the home securing the loan — and only within the $750,000 combined qualifying debt cap. Money used for debt consolidation, cars, or vacations is not deductible. The same rule applies to cash-out refi interest on the cashed-out portion. Keep receipts; the IRS asks.
What happens when the HELOC draw period ends?
After the typical 10-year draw period, the line closes to new borrowing and the payment converts from interest-only to fully amortizing principal + interest over ~20 years — a payment jump of 20–50% is common. This calculator simplifies the HELOC as amortizing from day one, so real payments start lower and end higher than shown. Plan for the jump two to three years out.
Can a HELOC rate go up?
Yes. Most HELOCs are variable — prime plus a margin — so your payment rises when rates rise. Many have no annual cap (only a lifetime cap, often 18%). If payment certainty matters more than flexibility, the cash-out refi’s fixed rate — or a fixed-rate home equity loan — is the calmer choice.