HELOC vs. cash-out refinance

If your mortgage rate is well below today's, a cash-out refinance reprices your whole loan to get a slice of cash. A HELOC prices only the slice.

Reviewed by Shawn Way, NMLS #1007298★ 4.9 from 111 reviewsUpdated October 28, 2026

The example

Example rates for illustration. Cash-out refinance closing costs, often 2%–5% of the loan, are not included and would widen the gap.

The blended-rate test

Weight each loan's rate by its balance. If the blend is below the cash-out rate, keep the first mortgage and add a HELOC.

When the cash-out refi wins

• Your current rate is close to or above today's refinance rates.
• You need a large amount relative to your mortgage, so the HELOC would dominate the blend.
• You want one fixed payment and no exposure to prime.
• You'd otherwise carry the HELOC balance for decades.

When the HELOC wins

• Your first mortgage rate is far below today's rates.
• You need the money over time, or not all at once.
• You plan to repay the borrowed amount within 5–10 years.
• You want lower closing costs.

Run your own numbers in the HELOC vs. cash-out calculator.

The blended rate, explained

When you keep a low mortgage and add a HELOC, your effective rate is the weighted average of the two. With $380,000 at 3% and $60,000 at 7.75% APR, the blend is roughly 3.6%. A cash-out refinance at 6.5% would need to beat that on the whole $440,000, which it can't. The bigger your existing low-rate balance and the smaller the new money, the more the HELOC wins. Run your own blend.

Payment detail for the example

The HELOC's rate can move, so the gap can shrink if rates rise. Even if the HELOC rate rose two points, the mixed approach would still cost less each month in this example.

Costs people overlook on a cash-out refinance

• Restarting the clock. A new 30-year loan resets your payoff date and front-loads interest again.
• Closing costs on the whole balance, not just the cash you take out.
• Mortgage insurance on FHA cash-outs. Conventional cash-outs are generally capped at 80% loan-to-value, so they don't carry private mortgage insurance, but that cap limits how much cash you can take.
• Loan limits. In high-cost counties, a cash-out on a large balance can cross into jumbo territory with stricter rules.

Costs people overlook on a HELOC

• Variable rate. Most lines move with prime. Lock part of the balance if your lender allows it.
• The end of the draw period, when payments switch to principal and interest. See the math.
• Annual fees and early-closure fees on some lines.

A quick way to decide

1. If your current rate is within about half a point of today's rates, a cash-out refinance is worth pricing.
2. If your current rate is well below today's and the cash you need is small compared to your balance, a HELOC almost always wins.
3. If you need a fixed payment for budgeting, compare a fixed-rate home equity loan too.
4. If you also want to get rid of FHA mortgage insurance or change your loan term, the refinance can win even at a higher rate.

More questions

Can I do a cash-out refinance later if rates fall after I take a HELOC?

Yes. If rates drop, you can refinance the first mortgage and pay off the HELOC at the same time. Starting with the HELOC keeps that option open.

Is a HELOC or a cash-out refinance faster to close?

A HELOC is usually faster, closing in two to five weeks, while a cash-out refinance often takes 30–45 days. A HELOC also usually has lower closing costs, often under $1,000.

Related question: HELOC vs. home equity loan vs. cash-out refinance

Related question: HELOC after refinancing

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