If you need to pull equity out of your home, you have two mainstream options: a HELOC (Home Equity Line of Credit) or a cash-out refinance. The right choice depends on your current mortgage rate, the cash amount, how long you’ll keep the loan, and your appetite for variable-rate risk. This calculator runs both side-by-side over your time horizon — and shows you which saves more money.
HELOC vs Cash-Out Refinance Calculator
Compare total cost over the time you’ll keep the loan. Two ways to pull equity, very different math.
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Adjust the inputs to compare.
HELOC option
Cash-Out Refinance
Estimates only. HELOC rates are variable (tied to prime); cash-out rates depend on credit score, LTV, and loan program. Run real Loan Estimates from 3 lenders before deciding. Not financial advice.
The fundamental difference
A HELOC is a second loan on top of your existing mortgage. Your original mortgage rate and balance stay exactly the same. The HELOC is a revolving credit line tied to prime rate (variable) that you draw on as needed. Closing costs are low ($500-$1,500), but the rate floats with the broader rate environment.
A cash-out refinance replaces your existing mortgage with a new, larger one — and you walk away with the difference in cash. Your old mortgage is gone. Your new mortgage has a new rate (usually 0.5-1% higher than purchase refi rates), new term (typically 30 years), and new closing costs (2-4% of the new loan).
When HELOC wins
The HELOC math is almost always better when:
- Your current mortgage rate is below current market rates. If you have a 3% mortgage and rates are now 7%, refinancing means giving up a low rate on $300K+ of debt — a massive cost. A HELOC at 8% on just $50K is much cheaper than refinancing the whole thing at 7%.
- You only need a small amount of cash ($20K-$100K) relative to your existing mortgage balance.
- You’ll pay it off in under 10 years. Short payoffs minimize total interest on the HELOC.
- You want flexibility. HELOCs are revolving — you can draw, pay back, and re-draw during the 10-year draw period.
When cash-out refinance wins
Cash-out is better when:
- Your current mortgage rate is higher than current rates. Rates dropped after you bought; refinancing the whole thing makes sense.
- You need a large amount of cash ($100K+) for major projects.
- You want fixed-rate certainty over the life of the loan. HELOCs are variable; refis are fixed.
- You’re consolidating high-rate debt (credit cards, personal loans). Locking everything into a fixed-rate mortgage simplifies your finances.
Why your current mortgage rate is the biggest factor
If you locked a low rate during 2020-2021 (3%-ish), your current mortgage is the cheapest debt you’ll likely ever have. Replacing it with a 7% cash-out refi means you pay 4% MORE on your entire balance, not just on the new cash.
Example math: $300K mortgage at 3% has $750/mo P&I (just on the loan portion). Replacing with $350K (added $50K cash) at 7% costs $2,329/mo. The added $50K cash effectively costs you $1,579/mo more than the old payment — way more than the same $50K via HELOC at 8.5% interest only.
Lock-in matters. Don’t give up a low rate unless you have to.
HELOC mechanics — the part nobody explains
HELOCs typically work in two phases:
Draw period (years 1-10)
You can borrow up to your credit limit, repay, and re-borrow. Most HELOCs require only interest payments during the draw period. That’s seductive — your minimum payment on a $50K balance at 8.5% is just $354/mo (interest only).
Repayment period (years 11-30)
After the draw period ends, you can no longer borrow. Now you must pay both principal and interest, often on a 20-year amortization schedule. Your monthly payment can roughly double.
Plan for this. Don’t be the homeowner who treats their HELOC as a low-payment-forever line and gets blindsided in year 11.
Cash-out refi mechanics
You’re replacing your entire mortgage. Things to know:
- Closing costs are 2-4% of the new loan, including origination, appraisal, title insurance, recording, and prepaid escrows. On a $350K refi, that’s $7,000-$14,000.
- Rate is typically 0.5-1% higher than purchase-loan rates because of cash-out risk premium.
- Limits: most conventional lenders cap cash-out at 80% LTV. FHA and VA allow higher.
- 30-year clock resets. If you’ve been paying down a mortgage for 10 years and refinance to a new 30-year, your total payoff time grows.
What about a Home Equity Loan?
A third (less common) option: a fixed-rate home equity loan. Like a HELOC, it’s a second loan that doesn’t disturb your first mortgage. Unlike a HELOC, it has a fixed rate and fixed term. You get a lump sum at closing. Rates are typically 0.5-1% higher than HELOCs.
Home equity loans make sense when:
- You want fixed-rate certainty (no variable risk)
- You’ll use the full amount immediately (no need for revolving credit)
- You want to keep your low first mortgage
Our calculator above models HELOC vs cash-out refi. A home equity loan would be similar to the HELOC scenario but with a fixed rate.
Tax implications
Interest on home equity debt is only deductible if the funds are used to buy, build, or substantially improve the home that secures the loan (per the 2017 TCJA, in effect through 2025 and likely beyond).
- Home renovation funded by HELOC or cash-out: interest deductible (subject to overall mortgage interest cap of $750K total mortgage debt)
- Debt consolidation, vacation, college tuition via HELOC: interest NOT deductible
The tax-deductibility difference can swing the math. Consult a tax advisor for your specific situation.
Related calculators
- Refinance Break-Even Calculator (article) — when does a refi pay off?
- Mortgage Payoff Calculator — model extra principal
- Home Affordability Calculator — how much house can you afford?
- Closing Cost Calculator — exact refi closing cost estimate
Estimates only. HELOC rates are tied to prime and adjust with Fed policy. Cash-out refi rates depend on credit score, LTV, loan program, and current market. Not financial advice.