HELOC vs Cash-Out Refinance Calculator

HELOC vs Cash-Out 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

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.