Cash-Out Refinance vs. HELOC vs. Home Equity Loan
Last updated October 2026
Quick answer
All three let you borrow against your home's equity, but they work very differently. A cash-out refinance replaces your entire mortgage — cheapest rate, but it reprices your whole balance, not just the new money. A HELOC is a variable-rate revolving line on top of your existing mortgage. A home equity loan is a fixed-rate lump sum, also on top of your existing mortgage. If your current mortgage rate is well below today's rates, a HELOC or home equity loan usually wins — even at a higher rate — because it leaves your low-rate first mortgage untouched.
The core structures, side by side
| Cash-out refinance | HELOC | Home equity loan | |
|---|---|---|---|
| What it does | Replaces your entire mortgage with a larger one | Adds a revolving credit line as a second lien | Adds a fixed lump-sum loan as a second lien |
| Rate type | Usually fixed | Usually variable | Usually fixed |
| How you receive funds | Lump sum at closing | Draw as needed, up to your limit | Lump sum at closing |
| Typical max LTV/CLTV | 80% (up to 100% for eligible VA borrowers) | 80%–85% combined | 80%–85% combined |
| Closing costs | 2%–6% of the full new loan | Often minimal | Moderate |
| Your existing first mortgage | Gone — replaced entirely | Stays exactly as is | Stays exactly as is |
The hidden cost people miss
Say your current mortgage is $280,000 at a locked-in 4.0% rate, and today's cash-out refinance rate is 6.35%. A cash-out refi doesn't just charge 6.35% on the new money — it reprices the entire $280,000 to 6.35% too:
| Keep at 4.0% (unchanged) | Repriced via cash-out refi (6.35%) | |
|---|---|---|
| Payment on the existing $280,000 | $1,336.72 | $1,742.33 |
That's $405.61 more per month — $4,867 a year — spent purely because the old balance got swept into the new rate, before you've even counted the cost of the new money you actually wanted. This is the single biggest reason HELOCs and home equity loans have become more popular whenever current mortgage rates sit above what homeowners are already locked into.
Cost of borrowing $80,000, three ways
| Option | Rate (illustrative) | Structure | Monthly cost |
|---|---|---|---|
| Cash-out refinance (the $80k portion) | 6.35% fixed, 30 yr | Amortizing | $498 |
| Home equity loan | 7.50% fixed, 20 yr | Amortizing | $644 |
| HELOC (draw period) | 8.00% variable | Interest-only during the draw period | $533 (rises as the rate moves; no principal reduction yet) |
Notice the HELOC's lower-looking payment is interest-only — none of it reduces the balance until the repayment period begins, at which point the payment typically jumps.
Model any of the three
MortMetrix can project a cash-out refinance, HELOC, or home equity loan against your actual current mortgage — including the whole-balance repricing effect most calculators skip.
Things to consider
- Compare your current rate first. If it's meaningfully below today's cash-out refi rate, run the "hidden cost" math above before assuming the refi route is cheaper.
- HELOC rates move with the market. A variable rate can rise well beyond where it started — budget for the payment at a higher rate, not just today's.
- The HELOC draw period ends. Most HELOCs give you 10 years of interest-only draws, then convert to a repayment period (often 20 years) where principal kicks in and payments increase, sometimes sharply.
- Tax deductibility has a condition. Interest on a HELOC or home equity loan is only deductible if the funds are used to buy, build, or substantially improve the home securing the debt — not for debt consolidation, tuition, or other uses.
- Every dollar borrowed costs interest for years. Borrow what you need for the purpose at hand, not a round number "just in case."
Run your own numbers
Track your actual mortgage
The figures on this page are an example loan. MortMetrix builds your full amortization schedule from your real balance, rate and term, then shows exactly what any extra payment does to your payoff date, lifetime interest and equity.
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Frequently asked questions
Which is cheapest?
A cash-out refinance usually carries the lowest rate, since it's a first-lien loan. But it's only cheaper overall if you don't already have a meaningfully lower rate on your existing mortgage — otherwise a HELOC or home equity loan can win despite the higher quoted rate.
Is HELOC interest tax deductible?
Only if the funds are used to buy, build, or substantially improve the home securing the debt. Using a HELOC for debt consolidation, tuition, or other purposes generally isn't deductible.
What's the main risk of a HELOC?
The rate is usually variable, so payments can rise. Most HELOCs also have a draw period (often interest-only) followed by a repayment period where principal kicks in — the payment can jump noticeably at that transition.
Can I borrow 100% of my equity?
No, generally. Most lenders cap combined loan-to-value at 80%–85%. VA cash-out refinances are a notable exception, allowing up to 100% LTV for eligible veterans.
How do I decide which one to use?
Start by comparing your current mortgage rate to today's cash-out refinance rate. If yours is meaningfully lower, a HELOC or home equity loan usually wins even at a higher quoted rate, since it avoids repricing your entire existing balance.
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Read moreFigures on this page are generated from the same amortization engine that powers the MortMetrix dashboard, using the example loan stated in each table. They are estimates based on a fixed-rate loan at a constant rate and are not your actual loan terms. This is educational information, not financial advice.