HELOC vs Refinance Calculator

Tap Your Equity — HELOC or Cash-Out Refi?

When you need to access home equity, you have two primary options: a home equity line of credit (HELOC) or a cash-out refinance. Both let you borrow against the equity you've built, but they work very differently and the better choice depends on how much you need, how long you'll hold the borrowing, and your tolerance for payment variability.

A HELOC is a revolving line — draw what you need, pay interest only on what you've used, and rates are typically variable. It's flexible and has lower closing costs, but your payment can rise if rates increase. A cash-out refi replaces your entire mortgage with a new, larger fixed-rate loan — a predictable single payment and access to larger amounts, but higher closing costs and a longer payback period.

Who this is for: Homeowners deciding between these two equity-access products based on their timeline and monthly payment goals. Key assumptions: HELOC rate is assumed variable and starts at the rate you enter. Cash-out refi uses standard fixed-rate amortization. HELOC closing costs (typically $500–$2,000) are lower than cash-out refi costs but not automatically included — adjust the comparison accordingly.

HELOC vs Refinance Calculator

Assumes HELOC is fully drawn at close. HELOC draw phase is interest-only on the full draw amount. Results are estimates — actual terms vary by lender. How we calculate

HELOC vs Cash-Out Refinance: When Each Wins

Both options access the same asset — your home equity — but they work very differently. The right choice depends on how much cash you need, how long you plan to stay, and what your existing mortgage rate is.

Choose a Cash-Out Refinance when…

• You want to lock in a fixed rate on your full balance and avoid variable-rate risk
• Your current mortgage rate is already above market (so refinancing makes sense anyway)
• You plan to stay in the home long enough to recover the closing costs through interest savings
• You need a large, one-time sum (e.g., major renovation, debt consolidation)

Choose a HELOC when…

• Your existing mortgage has a low rate you don't want to replace (e.g., a 3% fixed rate from 2020–2021)
• You'll sell or refinance again within 5–7 years (before the cash-out refi break-even)
• You need flexible, revolving access to funds (e.g., a multi-phase renovation)
• You can tolerate a variable HELOC rate and plan to pay down the balance during the draw period

The "Low First Mortgage Rate" Case

This is the dominant use case for HELOCs right now. Millions of homeowners locked in rates of 2.75%–4% in 2020–2022. A cash-out refinance would replace that entire balance at today's 6–7% rate, massively increasing their cost. A HELOC keeps the low first mortgage intact and adds a higher-rate second lien only on the new cash drawn.

The Break-Even Analysis

Use the "How long you'll stay" input to define your hold period. The calculator shows total cost (closing costs + all interest paid) for each option over that period. The option with the lower total cost wins for your specific situation.

How the Calculation Works

The total cost comparison uses interest-only math over your hold period so you're comparing apples to apples regardless of the loan term.

Cash-Out Refinance Total Cost

We compute your new monthly P&I payment on the combined balance (current balance + cash drawn) at the new rate and term. We then amortize month-by-month and sum all interest paid during your hold period. Closing costs are added as a one-time upfront item.

HELOC Total Cost

We keep your existing mortgage intact and compute interest on it over the hold period. For the HELOC line, we model the draw period as interest-only (on the full draw amount) and the repayment period as a standard amortizing payment. Both streams are summed over the hold period.

Key Assumptions

• HELOC is assumed to be fully drawn at closing (worst case — partial draws would cost less)
• HELOC rate is assumed fixed at the input value (variable rates may differ over time)
• No prepayment of either loan is modeled during the hold period
• The "combined payment (draw phase)" is your current P&I + HELOC interest-only monthly charge
• Taxes, insurance, and PMI are excluded from both options

For detailed formula documentation, see the methodology page.

Related Calculators & Reading

• Cash-Out Refinance Calculator — Net cash proceeds, new payment, and LTV check
• Refinance Payment Calculator — Calculate your new monthly P&I payment after refinancing
• Refinance Break-Even Calculator — How many months until closing costs are recovered?
• No-Closing-Cost Calculator — Roll costs in vs. pay upfront vs. take a lender credit
• HELOC vs Cash-Out Refi: Full Guide — Detailed comparison with examples and decision framework
• How to Use Home Equity Wisely — Best and riskiest uses of equity financing
• Not sure if you should refinance? — Refinance Decision Center

Frequently Asked Questions

When is a HELOC cheaper than a cash-out refinance?

A HELOC is usually cheaper for short hold periods (under 5–7 years) because it carries no closing costs and you only pay interest on what you draw. A cash-out refinance replaces your entire mortgage, so the closing costs (typically 2–5% of the new balance) take years to recoup through rate savings.

What is the main difference between a HELOC and a cash-out refinance?

A HELOC is a revolving second lien — your first mortgage stays unchanged and you draw from the credit line as needed. A cash-out refinance pays off your existing mortgage entirely and replaces it with a new, larger loan. You receive the difference as cash. The cash-out refi has higher upfront costs but locks in a fixed rate on your entire balance.

Does a HELOC affect my existing mortgage rate?

No. A HELOC is a separate second-lien loan. Your first mortgage rate, payment, and terms are completely unchanged. This is a key advantage if your existing rate is below today's market — a HELOC lets you access equity without disturbing a favorable first mortgage.

What is the typical HELOC draw period and repayment term?

Most HELOCs have a 10-year draw period during which you can borrow and repay repeatedly, paying interest-only on the outstanding balance. After the draw period, the line converts to a repayment phase (typically 10–20 years) with fully amortized P&I payments on the outstanding balance.

Is HELOC interest tax deductible?

Only if the HELOC funds are used to "buy, build, or substantially improve" the home securing the HELOC (IRS Publication 936). Under the 2017 Tax Cuts and Jobs Act, HELOC interest used for debt consolidation, vacations, tuition, or other non-home purposes is not deductible — even if the HELOC is secured by your home. This is a change from pre-2018 rules. Document how you use HELOC funds carefully; only verifiable home-improvement use qualifies for the deduction, and you must itemize on your federal return to claim it.

How much can I borrow with a HELOC?

Most lenders cap HELOC borrowing at 80%–90% of your home's appraised value minus your existing first mortgage balance — a measure called Combined Loan-to-Value (CLTV). Example: $450,000 home, $280,000 first mortgage. At 85% CLTV: max HELOC = ($450,000 × 0.85) − $280,000 = $102,500. Some credit unions go to 90%–95% CLTV for qualified borrowers. This calculator uses your inputs to show the CLTV impact on both the HELOC and cash-out options side by side.

Can I lock in a fixed rate on my HELOC?

Some lenders offer a rate-lock option that converts a portion of your drawn HELOC balance to a fixed-rate installment loan. This hybrid product provides draw flexibility but rate certainty on amounts you lock. Not all lenders offer this, and the locked rate is typically higher than the HELOC's variable floor. If fixed-rate certainty on the full amount is your priority, a cash-out refinance is usually a cleaner, less expensive solution than HELOC rate-lock provisions.

HELOC Rate Risk: How Variable Rates Actually Work

Most HELOCs use a variable rate tied to the Wall Street Journal Prime Rate (WSJ Prime), which moves in lockstep with the Federal Reserve's federal funds target rate. When the Fed raises rates, your HELOC rate rises within days — often at the next billing cycle. This creates real payment risk that the HELOC's initial low rate does not reflect.

How HELOC Rates Are Set

The lender margin is fixed at origination. WSJ Prime = Fed Funds Rate + 3.00% (by convention). If the Fed Funds Rate is 4.25%, Prime is 7.25%. A HELOC with a 0% margin charges exactly 7.25%. A HELOC with a −0.50% margin (promotional) charges 6.75%. A HELOC with a +1.0% margin charges 8.25%.

Rate Caps on HELOCs

Federal law requires HELOCs to have a lifetime rate cap, but there is no requirement for periodic (year-over-year) caps. This means a HELOC can theoretically go from 6.5% to 18% in a single year if the Fed moved rates aggressively — though the lifetime cap (typically Prime + 8–18% in loan documents) limits the ultimate maximum. Read your HELOC agreement's "Rate Adjustments" section carefully for the actual lifetime cap.

Worst-Case HELOC Payment Scenario

The repayment phase shock is the most underestimated HELOC risk. After 10 years of interest-only draws, the line converts to fully amortized payments on the remaining balance — often causing a 50–100% payment increase in one month. A fixed-rate cash-out refinance locks your payment and eliminates this risk entirely.

Choosing the Right Equity Tool: Decision Matrix

The right equity product depends on your specific use case, how long you'll hold it, and how much rate certainty you need. Use this matrix to match your situation to the right tool before running the numbers in the calculator above.

The Existing Rate Factor

If your current first mortgage rate is well below today's market, a cash-out refinance forces you to give it up — you're resetting your entire balance to the current rate. This is the primary reason many homeowners with 3%–4% pandemic-era rates choose HELOC over cash-out: the HELOC sits as a second lien, leaving the low-rate first mortgage intact. The tradeoff is variable rate risk on the HELOC. This calculator shows both paths so you can see the exact payment and interest cost for your specific rates.