HELOC vs Cash-Out Refinance Calculator
Compare home equity line of credit vs cash-out refinance. Analyze interest rates, closing costs, monthly payments, and break-even points.
Related Calculators
About This Calculator
Should you get a HELOC or cash-out refinance? With American homeowners sitting on $35 trillion in home equity and HELOC rates dropping to their lowest levels in over 36 months, millions are asking this exact question. The HELOC vs Cash-Out Refinance Calculator helps you make this critical decision by comparing true costs - monthly payments, total interest, closing fees, and break-even points.
Here's the core dilemma: As of January 2026, HELOC rates average 7.44% while cash-out refinance rates hover around 6-6.5%. At first glance, cash-out looks cheaper. But if you locked in a 3-4% mortgage during 2020-2022, refinancing means losing that golden rate on your entire balance - not just the new money you're borrowing.
The math that changes everything: A homeowner with a $300,000 mortgage at 3.5% who needs $50,000 would pay $10,500/year in interest by refinancing the full $350,000 at 6.5%. With a HELOC, they'd pay only $3,720 for the $50,000 at 7.44% while keeping their $10,500 original mortgage interest - saving $6,780 per year. This calculator runs these exact comparisons for your situation.
The 2026 rate environment: The Fed cut rates in late 2025, dropping the prime rate to 6.75%. HELOC rates (prime + margin) now sit in the mid-7% range - the lowest since early 2023. But with only one rate cut expected in 2026, rates may not fall much further. Now might be the optimal time to tap your equity.
Trusted Sources
How to Use the HELOC vs Cash-Out Refinance Calculator
- 1**Enter your current home value and mortgage balance**: Get your home value from recent comparable sales or Zillow estimate, and your mortgage balance from your latest statement.
- 2**Input the amount of cash you need**: Be specific about what you need to borrow - renovation costs, debt consolidation amount, or other planned expenses.
- 3**Provide your current mortgage rate and remaining term**: This is critical - if your rate is below 5%, HELOC almost always wins.
- 4**Enter the current HELOC rate**: As of January 2026, average HELOCs are 7.44% (prime 6.75% + 0.5-2% margin). Check your credit union for better rates.
- 5**Input the cash-out refinance rate and new term**: Get actual quotes from 3+ lenders. Current 30-year rates are around 6-6.5% for excellent credit.
- 6**Add closing costs for both options**: HELOCs typically $0-500; cash-out refinance 2-5% of loan amount ($6,000-15,000+).
- 7**Compare monthly payments, total interest, and break-even**: The calculator shows which option costs less over 5, 10, and 20+ year horizons.
- 8**Consider the risk factors**: HELOC rates are variable (can increase), cash-out refi is fixed. Factor in how long you'll stay in the home.
Formula
Available Equity = (Home Value × Max LTV%) - Current Mortgage Balance
Monthly HELOC Payment = Balance × (Annual Rate / 12) [interest-only during draw]
Cash-Out Payment = New Loan Amount × [r(1+r)^n] / [(1+r)^n - 1]
Break-Even Months = Total Closing Costs / Monthly Savings
Blended Rate = (Mortgage Balance × Mortgage Rate + New Debt × New Rate) / Total DebtAvailable equity is calculated by multiplying your home value by the maximum loan-to-value ratio (typically 80%) and subtracting your current mortgage balance. HELOC payments during the draw period are typically interest-only (principal balance × monthly rate). Cash-out refinance payments use the standard amortization formula where r is the monthly interest rate and n is total number of payments. Break-even divides closing costs by monthly savings. The blended rate formula helps compare total borrowing costs between HELOC (preserving original mortgage) and cash-out refinance (single new loan).
2026 Rate Environment: HELOC vs Cash-Out Refinance
Current Average Rates (January 2026):
| Product | Average Rate | Rate Range | Notes |
|---|---|---|---|
| HELOC (Variable) | 7.44% | 6.99% - 9.25% | Prime 6.75% + margin |
| Home Equity Loan (Fixed) | 7.59% | 6.75% - 9.00% | Fixed-rate alternative |
| Cash-Out Refinance (30yr) | 6.35% | 5.875% - 7.25% | Full mortgage replacement |
| Cash-Out Refinance (15yr) | 5.75% | 5.25% - 6.50% | Higher payments, lower rate |
Rate Trend Analysis:
The Fed's December 2025 rate cut dropped the prime rate to 6.75%, bringing HELOC rates to their lowest point in 36+ months. However, mortgage rates (affecting cash-out refinances) have been more stubborn, staying in the 6-7% range despite Fed cuts.
The Rate Arbitrage Opportunity:
If your current mortgage rate is:
- Below 4%: HELOC wins - preserve your rate at almost any cost
- 4-5.5%: HELOC usually wins - run the numbers carefully
- 5.5-6.5%: Could go either way - depends on amount needed
- Above 6.5%: Cash-out refinance may actually lower your blended rate
What Experts Say:
"If a homeowner is sitting at a lower rate, a HELOC might be a better option because it allows you to borrow against your home's equity without changing the terms of your existing mortgage," advises Chase Home Lending. With 80%+ of mortgage holders below 5%, HELOCs are winning for most homeowners.
HELOC Deep Dive: How It Works
Home Equity Line of Credit Mechanics:
A HELOC is a revolving credit line secured by your home. You can borrow, repay, and borrow again during the "draw period," then repay during the "repayment period."
Typical HELOC Structure:
| Phase | Duration | Payment Type | Key Features |
|---|---|---|---|
| Draw Period | 5-10 years | Interest-only option | Borrow up to limit, repay, reborrow |
| Repayment Period | 10-20 years | Principal + interest | No new borrowing, full amortization |
| Total Term | 15-30 years | Varies | Credit line closed at end |
2026 HELOC Advantages:
- Minimal closing costs ($0-500 vs $6,000-15,000 for cash-out)
- Preserves existing mortgage - Keep your golden 3-4% rate
- Flexibility - Only borrow what you need, when you need it
- Interest-only payments during draw period reduces cash flow burden
- Pay down and reborrow - Revolving access as needed
- Rates at 36-month low - 7.44% average, down from 9%+ peak
HELOC Disadvantages:
- Variable rate risk - Payments can increase if Fed raises rates
- Lifetime rate cap - Often 18%, could theoretically reach that
- Draw period ends - Payments can double when principal kicks in
- Freeze risk - Lender can reduce limit if home values drop
- Temptation - Easy access can lead to overborrowing
Best HELOC Rates (January 2026):
| Lender Type | Typical Rate | Notes |
|---|---|---|
| Credit Unions | 6.99% - 7.75% | Best rates, membership required |
| Online Lenders | 7.25% - 8.25% | Fast approval, competitive |
| Major Banks | 7.50% - 8.75% | Relationship discounts possible |
| Regional Banks | 7.25% - 8.50% | Varies by market |
Cash-Out Refinance Deep Dive: How It Works
Cash-Out Refinance Mechanics:
A cash-out refinance replaces your existing mortgage with a new, larger loan. You receive the difference between the new loan and your old balance in cash (minus closing costs).
Example Cash-Out Scenario:
| Component | Amount |
|---|---|
| Home Value | $500,000 |
| Current Mortgage | $300,000 |
| Max Cash-Out (80% LTV) | $100,000 |
| New Loan Amount | $400,000 |
| Closing Costs | -$12,000 |
| Cash in Hand | $88,000 |
2026 Cash-Out Refinance Advantages:
- Fixed rate - Payment never changes for 15-30 years
- Lower rate than HELOC - Currently 6.35% vs 7.44%
- Rate improvement possible - If your current mortgage is 7%+
- Single payment - Combines mortgage and cash into one
- Tax-deductible interest if used for home improvement
- No freeze risk - Funds disbursed at closing are yours
Cash-Out Refinance Disadvantages:
- High closing costs - 2-5% of loan ($8,000-$20,000 on $400K)
- Loses your current rate - Devastating if you have 3-4%
- Resets loan term - 20 years left becomes 30 again
- Longer break-even - Takes 3-5 years to recoup costs
- All-or-nothing - Must refinance entire mortgage
- Appraisal required - Must prove home value
When Cash-Out Refinance Makes Sense:
| Scenario | Recommendation |
|---|---|
| Current rate above 6.5% | Cash-out may lower blended rate |
| Need large sum ($75K+) | Single loan simplifies |
| Plan to stay 7+ years | Closing costs amortize |
| Want payment certainty | Fixed rate eliminates variable risk |
| Consolidating high-rate debt | Interest savings justify costs |
The Critical Break-Even Analysis
Understanding Break-Even: When Each Option Pays Off
The break-even point determines when savings from your choice exceed the costs. This calculation is essential for making the right decision.
HELOC Break-Even Calculation:
Since HELOC closing costs are minimal ($0-500), break-even is nearly immediate. The question is long-term: will HELOC variable rates stay below the blended cost of refinancing?
Cash-Out Refinance Break-Even Formula:
Break-Even Months = Closing Costs / Monthly Savings
Example Break-Even Scenarios:
| Scenario | Closing Costs | Monthly Savings | Break-Even |
|---|---|---|---|
| $400K refi, save $150/mo | $12,000 | $150 | 80 months (6.7 years) |
| $400K refi, save $300/mo | $12,000 | $300 | 40 months (3.3 years) |
| $400K refi, higher payment | $12,000 | -$200 | Never breaks even |
The "Blended Rate" Concept:
Don't compare HELOC rate vs cash-out rate directly. Compare total interest paid:
Scenario: $300K mortgage at 3.5%, need $50K cash
Option A - HELOC at 7.44%:
- Existing mortgage interest: $10,500/year
- HELOC interest: $3,720/year
- Total: $14,220/year
Option B - Cash-out at 6.35%:
- New $350K mortgage interest: $22,225/year
- Total: $22,225/year
HELOC saves $8,005/year despite the "higher" rate!
The Rate Comparison Matrix:
| Your Current Rate | Cash-Out Rate | HELOC Rate | Winner |
|---|---|---|---|
| 3.0% | 6.35% | 7.44% | HELOC |
| 4.0% | 6.35% | 7.44% | HELOC |
| 5.0% | 6.35% | 7.44% | Depends on amount |
| 6.0% | 6.35% | 7.44% | Close - run numbers |
| 7.0% | 6.35% | 7.44% | Cash-Out |
Common Mistakes to Avoid
HELOC Mistakes:
-
Ignoring rate caps - Check the lifetime maximum rate (often 18%). At 18%, a $50,000 HELOC would cost $750/month interest-only.
-
Forgetting draw period ends - Payments can double or triple when you shift from interest-only to full amortization after 10 years.
-
Maximum borrowing - Just because you qualify for $150,000 doesn't mean you should take it. Leave a cushion for emergencies and home value fluctuation.
-
Using equity for consumption - Cars, vacations, and luxury items depreciate. You're putting your home at risk for things that lose value.
-
Not shopping rates - Credit unions often beat banks by 1%+ on HELOCs. Get quotes from at least 3-5 lenders.
-
Ignoring the variable rate risk - If the Fed raises rates aggressively again (like 2022-2023), your HELOC could jump from 7% to 10%+.
Cash-Out Refinance Mistakes:
-
Chasing cash at any rate - Trading a 3.5% mortgage for 6.5% to access $50,000 is financial malpractice in most cases.
-
Ignoring break-even timeline - If you might move in 3-4 years, closing costs never pay off. The average homeowner stays 8 years.
-
Extending term unnecessarily - Refinancing from 20 years remaining to a new 30-year adds a decade of payments.
-
Not comparing lenders - Rates vary by 0.5%+ between lenders for identical scenarios.
-
Forgetting PMI - If your new LTV exceeds 80%, you'll pay private mortgage insurance ($100-300/month on large loans).
-
Rolling closing costs into loan - "No-cost" refinances add costs to principal - you pay interest on your closing costs for 30 years.
Questions to Ask Yourself:
- How long will I stay in this home?
- Can I handle HELOC payment increases?
- What's my current mortgage rate (golden or not)?
- Do I need all the cash now, or over time?
- What am I using the money for (investment vs consumption)?
Tax Considerations for Home Equity
Interest Deductibility Rules (2026):
After the 2017 Tax Cuts and Jobs Act, home equity interest is only tax-deductible under specific circumstances:
Deductible Interest:
- Used to "buy, build, or substantially improve" your home
- Subject to the $750,000 total mortgage debt limit
- Must itemize deductions (vs. standard deduction)
NOT Deductible:
- Debt consolidation (credit cards, car loans)
- College tuition
- Medical expenses
- Vacation or consumption spending
- Investment in non-home assets
2026 Standard Deduction:
| Filing Status | Standard Deduction |
|---|---|
| Single | $15,000 |
| Married Filing Jointly | $30,000 |
| Head of Household | $22,500 |
The Deduction Math:
If your total itemized deductions (including SALT cap of $10,000, mortgage interest, charitable giving) don't exceed the standard deduction, you get zero tax benefit from mortgage interest.
Example Tax Impact:
| Scenario | HELOC | Cash-Out |
|---|---|---|
| Borrowed Amount | $50,000 | $50,000 |
| Interest Rate | 7.44% | 6.35% |
| Annual Interest | $3,720 | $3,175 |
| Tax Bracket | 24% | 24% |
| Tax Savings (if deductible) | $893 | $762 |
| After-Tax Interest Cost | $2,827 | $2,413 |
Important: Only the interest on funds used for home improvement is deductible. Keep documentation of how you used the money.
Consult a Tax Professional:
Tax situations are complex. The examples above are simplified. Consult a CPA or tax advisor for your specific situation, especially if you're considering using home equity for non-home purposes.
Alternative Options to Consider
Beyond HELOC vs Cash-Out: Other Ways to Access Equity
Home Equity Loan (HEL):
| Feature | Home Equity Loan | HELOC |
|---|---|---|
| Rate Type | Fixed | Variable |
| Disbursement | Lump sum | Draw as needed |
| Average Rate (2026) | 7.59% | 7.44% |
| Best For | One-time expense | Ongoing needs |
| Closing Costs | $500-2,000 | $0-500 |
Home equity loans offer HELOC-like benefits (preserve first mortgage) with fixed-rate certainty.
Personal Loan:
| Feature | Personal Loan | HELOC |
|---|---|---|
| Collateral | None | Your home |
| Rate Range | 8-15% | 7-9% |
| Approval Speed | Days | 2-4 weeks |
| Loan Amount | Up to $50K typical | Based on equity |
| Risk | Credit score | Home foreclosure |
Personal loans make sense for smaller amounts where you don't want to put your home at risk.
0% Credit Card Balance Transfer:
For smaller amounts ($5,000-$25,000), a 0% APR balance transfer card might beat both options:
- 0% for 15-21 months
- 3-5% transfer fee
- No home risk
- Must pay off before rate jumps
401(k) Loan:
| Feature | 401(k) Loan | HELOC |
|---|---|---|
| Interest | Prime + 1-2% | Prime + 0.5-2% |
| Repayment | 5 years | 20-30 years |
| Risk | Retirement savings | Home |
| Tax Impact | Repaid pre-tax | Interest maybe deductible |
401(k) loans can work for short-term needs, but reduce retirement growth.
Reverse Mortgage (62+):
For homeowners 62+, a Home Equity Conversion Mortgage (HECM) allows accessing equity without monthly payments. Complex product - only consider with professional guidance.
Pro Tips
- 💡If your current mortgage rate is below 4%, almost always choose a HELOC over cash-out refinance - preserving that rate is worth thousands annually.
- 💡Shop at least 5 lenders including credit unions - HELOC rates vary by 1-2% between lenders for the same borrower profile.
- 💡For HELOCs, ask about the lifetime rate cap (often 18%) and what payments would be at that maximum rate.
- 💡Calculate how long you plan to stay in the home - cash-out refinance closing costs need 3-7 years to break even.
- 💡Consider a fixed-rate home equity loan if you want HELOC benefits with payment certainty and no variable rate risk.
- 💡Keep your combined loan-to-value (CLTV) below 80% to avoid PMI and maintain a safety cushion if values drop.
- 💡Use home equity only for appreciating investments (home improvements, business) rather than depreciating expenses (cars, vacations).
- 💡Time your HELOC application when the prime rate is low - January 2026 rates (6.75% prime) are at 36-month lows after Fed cuts.
- 💡Ask about interest-only payment options during the HELOC draw period to minimize cash flow impact while renovating.
- 💡If you do cash-out refinance, avoid rolling closing costs into the loan - you'll pay interest on those costs for 30 years.
- 💡Document what you use home equity funds for - only home improvement expenses may qualify for the mortgage interest deduction.
- 💡Consider refinancing only if you can drop your rate by at least 1% AND recoup closing costs within 3 years of your expected stay.
Frequently Asked Questions
For most homeowners in 2026, a HELOC is the better choice. Why? Over 80% of mortgage holders have rates below 5%, making it financially devastating to refinance their entire mortgage at current 6-6.5% rates just to access equity. With HELOCs averaging 7.44% (at 36-month lows after Fed cuts), you pay the higher rate only on the new money while preserving your golden first mortgage rate. Cash-out refinance only makes sense if your current mortgage rate is already above 6.5%, you need a large sum ($75K+), and you plan to stay 7+ years to recoup closing costs.
