HELOC vs Cash-Out Refinance Calculator
Both let you turn home equity into cash, but they work very differently. Compare a HELOC and a cash-out refinance side by side to see which one is cheaper, what each monthly payment looks like, and when each option makes sense.
Your Current Mortgage & Cash Need
Cash-Out Refinance Terms
Fixed rate, applies to whole balance
Typically 2-5% of loan amount
HELOC Terms
Variable; tied to Prime
Interest-only payments
Principal + interest
Often $0-$1,000
Cheaper Option for Borrowing $60,000
HELOC
Saves about $137,201 in total cost of the cash you borrow
Side-by-Side Comparison
Cash-Out Refinance
HELOC + Existing Mortgage
True Cost of Borrowing $60,000
This isolates just the cost of the cash you're tapping — the extra interest plus closing costs above what you would have paid keeping your existing mortgage untouched.
Cash-Out Refi
$257,455
New mortgage interest + closing costs minus existing-mortgage interest
HELOC
$120,254
HELOC interest over draw + repayment + closing costs
A HELOC saves about $137,201 here because you keep your low-rate first mortgage intact and only pay HELOC interest on the cash you actually use. Note: HELOC rates are variable, so the actual cost can swing if Prime moves.
Which Should You Choose?
| If you... | Cash-Out Refi | HELOC |
|---|---|---|
| Have a low existing mortgage rate | Bad fit — you'd refinance into a higher rate | Good fit — keep the cheap first mortgage |
| Need the cash all at once | Good fit — funds at closing | Works, but a HELOAN (home equity loan) is cleaner |
| Will draw cash gradually (e.g. multi-stage reno) | Wastes interest on funds you aren't using | Good fit — only pay on what you draw |
| Want a predictable, fixed payment | Good fit — fixed for the life of the loan | Bad fit — variable rate, payment can rise |
| Want low upfront costs | 2-5% of loan amount in closing costs | Often $0-$1,000 — much cheaper to open |
| Plan to pay it off quickly (1-3 years) | Closing costs hard to recoup that fast | Good fit — low costs, flexible payoff |
How Each Option Works
A cash-out refinance replaces your existing mortgage with a new, larger loan. You take the difference between the new loan amount and what you currently owe in cash at closing. You end up with one mortgage at one fixed rate, but that rate now applies to the entire balance — including the portion you would have kept at your old rate. Closing costs are similar to a regular refinance: typically 2-5% of the new loan amount.
A HELOC (home equity line of credit) leaves your existing mortgage in place and adds a second loan secured by your home. It works like a credit card backed by your house: a lender approves a credit limit, and during a multi-year draw period (usually 10 years) you can borrow against it, repay, and borrow again. Payments during the draw period are typically interest-only on whatever balance you've actually drawn. After the draw period ends, you enter the repayment period (typically 10-20 years) and start paying principal and interest on the remaining balance, which causes the payment to jump.
The other big structural difference is the rate: cash-out refis are usually fixed-rate, while HELOCs are almost always variable-rate, tied to the Prime rate. That means HELOC payments can rise (or fall) over time as the Federal Reserve changes rates.
Pros & Cons: Cash-Out Refinance
Pros
- Fixed rate — predictable payment for the life of the loan
- One simple monthly mortgage payment, not two
- Full cash delivered at closing
- Acquisition-debt portion remains tax-deductible (the refinanced portion that replaces your existing mortgage)
Cons
- Refinances your entire balance — bad if your existing rate is low
- High closing costs (2-5% of new loan amount)
- You pay interest on all the cash from day one
- Resets the clock — a 30-year refi restarts the amortization
Pros & Cons: HELOC
Pros
- Keeps your existing low-rate first mortgage intact
- Low or no closing costs (often $0-$1,000)
- Only pay interest on what you draw — great for staged projects
- Flexible: draw, repay, draw again during the draw period
Cons
- Variable rate — payments rise when Prime rises
- Payment shock when the draw period ends and principal kicks in
- Two monthly payments to manage (existing mortgage + HELOC)
- Lender can freeze or reduce the line if home values drop
Common Use Cases
Home renovation
If the project is one big bill (a new roof, an addition with a fixed contract), either works — pick on cost. If you'll draw funds over multiple phases (kitchen now, bathroom next year), a HELOC usually wins because you only pay interest on what you've actually drawn.
Debt consolidation
Both can roll high-rate credit card balances into a much cheaper home-secured loan. Cash-out refi gives you a fixed payoff schedule, which forces discipline. A HELOC is more flexible but easier to abuse — and either way, you've converted unsecured debt into a lien on your house. Only do this if you're sure the spending behavior that created the debt has stopped.
Education funding
A HELOC fits well: tuition gets billed each semester, so you draw only what you need each term. The variable rate is the tradeoff against more rigid options like federal student loans (which have other features — deferment, income-driven repayment — that home equity does not).
Large one-time purchase
For a single large purchase paid all at once (a car, an investment property down payment, a business buy-in), a cash-out refinance or a fixed home equity loan is usually cleaner than a HELOC because you lock in the rate and have a fixed payoff schedule from day one.
Recommended reading
Books on home equity & refinancing
Borrowing against your home is one of the larger financial decisions you can make — these guides cover the mechanics, the tradeoffs, and the negotiating points so you walk into the conversation with the lender prepared.
The Home Equity Loan Handbook
Practical guides on tapping home equity
Plain-English explanations of how home equity loans, HELOCs, and cash-out refinances actually work — and how to compare offers without getting steered.
Mortgages For Dummies
Eric Tyson & Ray Brown
Covers refinancing, second mortgages, HELOCs, and the math behind each — useful background before you sign anything.
As an Amazon Associate this site earns from qualifying purchases. Links are sponsored.
Frequently Asked Questions
What's the main difference between a HELOC and a cash-out refinance?
A cash-out refinance replaces your existing mortgage with a new, larger loan and gives you the difference in cash — you end up with one new fixed-rate mortgage. A HELOC leaves your existing mortgage alone and adds a second, revolving line of credit secured by your home, usually with a variable rate. Cash-out refi is one loan, fixed; HELOC is a separate credit line, variable, with a draw period and a repayment period.
Is a HELOC or cash-out refinance cheaper?
It depends on the rate on your existing mortgage. If your current mortgage rate is well below today's rates, a HELOC is usually cheaper because you don't refinance your low-rate first mortgage into a higher rate. If your current rate is at or above today's rates, a cash-out refinance can be cheaper because the fixed rate applies to the whole balance and you avoid the higher variable HELOC rate. The calculator on this page shows the true cost-of-cash for each option using your numbers.
Are HELOC payments interest-only?
During the draw period (typically 10 years), most HELOCs require interest-only payments on the balance you've drawn — which keeps the monthly cost low while you have access to the credit line. Once the draw period ends, the HELOC enters its repayment period (typically 10-20 years) and converts to principal-and-interest payments, which can make the payment jump significantly. This 'payment shock' is the biggest thing to plan for with a HELOC.
Can I deduct the interest on a HELOC or cash-out refinance?
Under current IRS rules (post-2017 tax law), interest on home-equity debt — including a HELOC or the cash-out portion of a refinance — is only deductible if the funds are used to buy, build, or substantially improve the home that secures the loan. Using the money for debt consolidation, college, or other purposes makes that interest non-deductible. The rest of a cash-out refinance (the portion that replaces your existing mortgage) generally remains deductible as acquisition debt. Talk to a CPA for your specific situation.
How much equity do I need to qualify?
Most lenders cap your combined loan-to-value (CLTV) at 80-85% of the home's appraised value. So if your home is worth $400,000, total mortgage debt (existing mortgage + new HELOC, or the new cash-out refi loan) generally can't exceed $320,000-$340,000. The cash you can pull is your home's value times the CLTV cap, minus your current mortgage balance.
Which is better for home renovations?
For a single large renovation paid out at once, either works — pick on cost. For a multi-stage project where you'll draw funds over months or years, a HELOC is usually better because you only pay interest on what you've actually drawn. A cash-out refinance gives you the full amount at closing whether you need it that day or not, so you start paying interest on idle cash.
Should I use home equity for debt consolidation?
Mathematically it can work — HELOC and refi rates are usually far below credit card APRs. The risk is that you're converting unsecured debt (a credit card balance you could theoretically discharge in bankruptcy) into secured debt against your house. If you can't make payments later, you can lose the home. It only works long-term if you also stop adding new credit card balances — otherwise you double your debt and put the house on the line.