HELOC vs. cash-out refinance calculator
A cash-out refinance reprices your whole mortgage to get the cash. A HELOC prices only the cash. The blended rate shows which costs less.
Which costs less, a HELOC or a cash-out refinance?
When your mortgage rate is low, keeping it and adding a HELOC often costs less than a cash-out refinance, because a HELOC prices only the cash. With $380,000 left at 3.0% and $60,000 needed, adding a HELOC at 7.75% APR costs $2,248/mo, a 3.65% blended rate. A $440,000 cash-out refinance at 6.5% costs $2,781/mo.
HELOC vs. cash-out refinance
Keeping your mortgage and adding a HELOC costs less per month. Your blended rate would be 3.65% vs. 6.50% on the refinance.
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How the blended rate works
Example: ($380,000 × 3.0% + $60,000 × 7.75%) ÷ $440,000 = about 3.65%. If a cash-out refinance can't beat the blended rate, it costs you more each year, before closing costs.
The tipping point
The more you need relative to your current balance, the more the blend rises. If you'd be borrowing more than about a third of your current balance, or your current rate is within a point of today's rates, price the cash-out refinance too.
Beyond the rate
- A cash-out refinance resets your term and carries higher closing costs.
- A HELOC's rate can rise; lock part of it if that's a concern.
- The HELOC's end-of-draw payment jump needs a plan.
Questions people ask
When does a cash-out refinance beat a HELOC?
A cash-out refinance can cost less when your current mortgage rate is close to today's rates or the cash you need is large compared with the mortgage. If your rate is within a point of today's rates, or you'd borrow more than about a third of your balance, price the cash-out refinance too. The full comparison.
Why aren't cash-out refinance closing costs in the monthly payment?
The calculator shows cash-out refinance closing costs separately because many borrowers pay them at closing. If you'd roll them into the loan, add them to the comparison yourself.
A case where the cash-out refinance wins
A homeowner owes $200,000 at 6.0% and needs $150,000. Keeping the mortgage and adding a $150,000 HELOC at 7.75% APR gives a blended rate around 6.75%. A cash-out refinance to $350,000 at 6.25% beats that blend, locks a fixed rate on the whole amount, and avoids the HELOC's variable rate and end-of-draw jump. When your existing rate is close to today's and the new money is large, run the numbers; the refinance can win.
Also asked
What if I need more than the HELOC can cover?
A HELOC is limited by your equity and the lender's cap, often 85% of value combined with your mortgage. If the cash you need goes beyond that, a cash-out refinance may lend more, or you can combine a smaller HELOC with savings. Run the calculator at the maximum line to see whether the blend still wins.
Should I include the HELOC's future rate changes?
Yes, test the HELOC rate 1 and 2 points higher. If keeping your mortgage and adding a HELOC still beats the cash-out refinance at the higher rate, the decision is robust; if not, consider a fixed-rate lock or a fixed home equity loan.
How do closing costs change the HELOC vs. cash-out refinance decision?
Divide the cash-out refinance's extra closing costs by the monthly difference to see how many months it takes to recover them. A cash-out with $12,000 in costs that saves $100 a month takes 10 years to pay back, which rarely makes sense.
Does the HELOC vs. cash-out calculator include taxes and insurance?
No. It compares loan payments only. Taxes and insurance are the same either way, so they don't change which option wins, though they matter for your total budget.