A Home Equity Line of Credit is a revolving credit line secured by your home equity. During the draw period (typically 5-10 years), you borrow what you need and pay interest only on the outstanding balance. After the draw period, the balance enters a repayment phase. HELOC rates are typically variable and tied to the Prime Rate.

What is a cash-out refinance?

A cash-out refinance replaces your existing mortgage with a larger loan. You receive the difference between the new loan amount and your old balance as cash. Your entire mortgage is refinanced at the new rate, which means your existing rate is replaced whether it was favorable or not. Use a range of inputs rather than a single figure to understand the sensitivity of your outcome to this variable.

Which option is better if I have a low existing mortgage rate?

If your current mortgage rate is 3-4% and market rates are 6-8%, a cash-out refi replaces your low rate with a higher one on the full balance. In most cases, a HELOC preserves the low rate on your existing balance while adding new borrowing at a higher rate. Use this calculator to see the total cost for your specific numbers.

Are HELOC rates fixed or variable?

HELOC rates are typically variable, tied to the Prime Rate plus a margin. When the Prime Rate rises, your HELOC payment rises too. Cash-out refinances can be fixed-rate, providing payment certainty. This calculator uses your entered rate for all periods; real HELOC costs may increase if rates rise. Verify current figures with the IRS or relevant authority before making financial decisions, as rates change annually.

What are typical HELOC closing costs?

HELOCs have minimal upfront costs: often $0 to $500 for small lines. Some lenders charge an annual fee of $50-100. Cash-out refis typically cost 2-5% of the new loan amount in closing costs, making them more expensive upfront but potentially cheaper over time if the rate is substantially lower. Verify current figures with the IRS or relevant authority before making financial decisions, as rates change annually.

Should I use a HELOC or refi to pay off credit card debt?

Home equity generally offers a much lower interest rate than credit cards (24%+ APR). Both options can meaningfully reduce your borrowing cost. However, you are converting unsecured debt to secured debt backed by your home. If you cannot repay, you risk foreclosure. Consult a financial advisor before using home equity for debt consolidation.

HELOC vs Cash-Out Refi Calculator

Enter your current mortgage details, the amount you want to borrow, and the terms of each option to see total interest paid, closing costs, monthly payments, and the break-even year where the refinance's lower rate pays back its upfront costs. Everything runs in your browser with nothing stored or transmitted.

How this tool works

The HELOC vs cash-out refinance comparator models two ways to access home equity and compares their total cost over a chosen holding period. A HELOC (Home Equity Line of Credit) is a revolving credit line at a variable rate tied to the prime rate plus a margin; you pay interest only on the drawn balance. A cash-out refinance replaces the existing mortgage with a new, larger loan, giving you the difference in cash; it typically incurs 2-5% in closing costs and resets the loan term. HELOC total cost over the holding period = drawn amount x annual rate x years + HELOC origination fees. Cash-out refi total cost = closing costs + (new monthly payment - old monthly payment) x months held. The break-even point is where the cumulative cost of both options crosses -- before the break-even, the HELOC is cheaper; after it, the refi is. Key assumption: HELOC rates are modeled at today's rate with no change over the period. In a rising rate environment the HELOC's total cost will exceed the model if rates increase materially before payoff. Edge case: a cash-out refi that extends the loan term significantly can add years of interest payments that dwarf the HELOC cost for homeowners within 10-15 years of their original payoff date. The tool flags when the new loan term exceeds the remaining original term by more than 5 years and shows the incremental lifetime interest cost of the term extension.

Worked example

Current mortgage: $200,000. Equity needed: $50,000. Repayment: 10 years. HELOC at 9% interest-only with $500 closing costs: $375/month during draw, total cost $45,500. Cash-out refi at 7% with $6,000 closing: equity portion roughly $332/month, total cost approximately $29,900 over 10 years. The refi costs $15,600 less despite higher upfront costs because the 7% rate is substantially below the 9% HELOC rate. Break-even on the extra closing costs: approximately 43 months.

Official sources

Frequently asked questions

What is a HELOC?
A Home Equity Line of Credit is a revolving credit line secured by your home equity. During the draw period (typically 5-10 years), you borrow what you need and pay interest only on the outstanding balance. After the draw period, the balance enters a repayment phase. HELOC rates are typically variable and tied to the Prime Rate.
What is a cash-out refinance?
A cash-out refinance replaces your existing mortgage with a larger loan. You receive the difference between the new loan amount and your old balance as cash. Your entire mortgage is refinanced at the new rate, which means your existing rate is replaced whether it was favorable or not. Use a range of inputs rather than a single figure to understand the sensitivity of your outcome to this variable.
Which option is better if I have a low existing mortgage rate?
If your current mortgage rate is 3-4% and market rates are 6-8%, a cash-out refi replaces your low rate with a higher one on the full balance. In most cases, a HELOC preserves the low rate on your existing balance while adding new borrowing at a higher rate. Use this calculator to see the total cost for your specific numbers.
Are HELOC rates fixed or variable?
HELOC rates are typically variable, tied to the Prime Rate plus a margin. When the Prime Rate rises, your HELOC payment rises too. Cash-out refinances can be fixed-rate, providing payment certainty. This calculator uses your entered rate for all periods; real HELOC costs may increase if rates rise. Verify current figures with the IRS or relevant authority before making financial decisions, as rates change annually.
What are typical HELOC closing costs?
HELOCs have minimal upfront costs: often $0 to $500 for small lines. Some lenders charge an annual fee of $50-100. Cash-out refis typically cost 2-5% of the new loan amount in closing costs, making them more expensive upfront but potentially cheaper over time if the rate is substantially lower. Verify current figures with the IRS or relevant authority before making financial decisions, as rates change annually.
Should I use a HELOC or refi to pay off credit card debt?
Home equity generally offers a much lower interest rate than credit cards (24%+ APR). Both options can meaningfully reduce your borrowing cost. However, you are converting unsecured debt to secured debt backed by your home. If you cannot repay, you risk foreclosure. Consult a financial advisor before using home equity for debt consolidation.