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Cash-Out Refinance vs HELOC vs Home Equity Loan

Last updated: October 8, 2026

Three ways to borrow against your home, and what each one does to the mortgage you already have. One $50,000 example, worked with the same payment formula as the Mortgage Payment Calculator.

Which article do you need? This one is about taking cash out of your equity. If you want to replace your mortgage with a lower rate or a shorter term and take no cash, that is a rate-and-term refinance, and the break-even math for it is in Should I refinance my mortgage? The two questions overlap in one place: a cash-out refinance is also a refinance, so it replaces your whole loan.

The three ways to tap your home equity

Cash-out refinance. Replaces your existing mortgage with a new, larger one. You pocket the difference in cash. Illustration of the structure, not a quote: you owe $200,000 on a home worth $400,000. You refinance for $250,000, pay off the old $200,000 balance, and walk away with $50,000 cash. The new mortgage charges the rate on that new loan for the entire $250,000 balance.

HELOC (Home Equity Line of Credit). A revolving credit line secured by your home equity. Variable interest rate, usually the prime rate plus a margin the lender sets. The CFPB's explanation of a HELOC describes how the draw period and repayment period work, and the CFPB's HELOC brochure covers what to compare on the offers. You draw from it as needed during the draw period, then enter the repayment period. The length of each period is on the offer. Your primary mortgage stays untouched.

Home equity loan. A one-time lump sum, usually at a fixed interest rate, secured by your equity, as the CFPB's home equity loan explainer describes. You get the full amount at closing and pay it back in equal monthly installments over the term on the offer. Like the HELOC, this is a second loan on top of your existing mortgage. Your primary mortgage stays untouched.

Why the rate you already have matters

In 2020 and early 2022, many homeowners locked a mortgage rate that later quotes did not match. The series to check is the Freddie Mac Primary Mortgage Market Survey. This page does not copy those weekly figures, because they change.

Here is why that gap matters: a cash-out refinance replaces your entire mortgage at the rate on the new loan. If the quote is higher than the rate you already have, you pay the new rate on the cash you take out and on the balance you already owe.

A HELOC or home equity loan does not do that. Your primary mortgage stays at the rate you already have. The new loan is charged at the rate on that second offer, and only on the new amount you borrow.

Worked example: $50,000 cash, three ways

Hypothetical example, not a quote of current rates, home prices, or fees. Every payment below comes from the standard fixed-rate payment formula the Mortgage Payment Calculator runs: payment = P × r(1 + r)ⁿ ÷ ((1 + r)ⁿ − 1), where P is the amount borrowed, r is the annual rate ÷ 12, and n is the number of monthly payments. Total interest is the payment × n, minus P.

Suppose you financed $320,000 at a 3% fixed 30-year rate. The payment is about $1,349 a month. After five years (60 payments) the remaining balance on that schedule is about $284,500, with 25 years left. You need $50,000 for a renovation. If you change nothing, the rest of the old loan charges about $120,200 more interest over those 25 years.

Option 1: Cash-out refinance.

• New mortgage: $334,500 ($284,500 paid off + $50,000 cash out)
• New rate: 7% for 30 years (a hypothetical quote for this example, not a current market rate)
• New payment: about $2,225/month for principal and interest, up about $876 from $1,349
• Total interest on the new loan over 30 years: about $466,700
• Closing costs: use the total on the lender's Loan Estimate. They are not included above. The CFPB explains the Loan Estimate.
• The new loan also runs 30 years from today, five years longer than the 25 left on the old one. Part of the extra interest comes from that longer schedule.

Option 2: HELOC for $50,000.

• Original mortgage stays at about $284,500, 3%, $1,349/month
• HELOC at 9% variable (a hypothetical example rate, not a current quote), held at 9% for this illustration
• Interest-only during a 10-year draw period, with the full $50,000 drawn: $50,000 × 9% ÷ 12 = $375/month, or $45,000 of interest over 10 years
• Then the $50,000 amortizes over a 20-year repayment period: about $450/month, about $58,000 of interest
• Total HELOC interest over 30 years: about $103,000
• Closing costs and the draw and repayment terms are whatever the HELOC offer lists. Read that disclosure rather than assuming the fee is small.
• Variable rate risk: if the index rises, the HELOC rate and payment rise too.

Option 3: Home equity loan for $50,000.

• Original mortgage stays at about $284,500, 3%, $1,349/month
• Home equity loan at 8.5% fixed, 15-year term (a hypothetical example rate)
• Payment: about $492/month for 15 years
• Total interest: about $38,600
• Closing costs: whatever the home equity loan offer lists

Side by side, interest from today on all the home debt (before closing costs):

In this example, getting the same $50,000 adds about $346,400 of interest through the cash-out refinance, compared with about $103,000 through the HELOC and about $38,600 through the home equity loan. The reason is not the $50,000. It is the $284,500 already borrowed at 3%, which the cash-out refinance moves to 7% and stretches back to 30 years. With different rates, a different balance, or a shorter refinance term, the gap changes, so run your own offers through the calculator. The comparison also leaves out closing costs, any rate change on the HELOC, and what you could do with the lower monthly payments.

When cash-out refi DOES still make sense

• The refinance quote is not higher than the rate you already pay. If the new rate matches the rate on your statement, a cash-out refinance does not replace a cheaper loan with a more expensive one. Use those two documents.
• You need a large amount relative to your home value. The combined loan-to-value cap is the one on the written offer. There is not one national cap. If that cap cannot provide the cash, a cash-out refinance may be the product that can.
• You want a fixed rate and HELOC variable risk concerns you. A home equity loan is usually fixed too. Compare its quote with the cash-out quote rather than assuming either is lower.
• You're consolidating higher-interest debt. Put the APR on the card statement next to the rate on the mortgage offer before you decide. A mortgage is not automatically cheaper, and replacing a lower rate you already have can erase the gain. Measure the card side on the Credit Card Payoff Calculator.

When HELOC wins

• You don't know exactly how much you need. HELOC lets you draw as needed during the draw period. No interest on the unused portion.
• You'll repay it quickly. A rate change has fewer months to affect you if you pay the balance off soon. It can still move while you owe it.
• Recurring or staged expenses. Home renovation paid in phases, tuition over multiple years, supporting a small business cash flow.
• You want flexibility on payment timing. Interest-only payments during the draw period give you maximum cash flow flexibility.

When home equity loan wins

• You need a one-time large amount. Single payment up front, simple amortization, predictable.
• You want fixed-rate certainty. Rate is locked for the life of the loan. No surprises if prime moves.
• You prefer mathematical clarity. Fixed payment for a fixed term is easier to budget against than HELOC's variable structure.
• The amount is large enough that the rate on the two offers matters. Compare the fixed rate on the home equity loan quote with the variable HELOC rate. The gap is on those two offers.

Before you choose

If your existing rate is lower than the refinance quote, a cash-out refinance means accepting that higher rate on the entire balance just to take cash out. In the hypothetical example above, the cash-out path cost more interest than the HELOC and home equity loan paths because the lower rate was given up on the whole balance.

Run this before you decide: what is my current mortgage rate, what rate is on the refinance quote, and how much cash am I trying to take out? Enter those figures in the Mortgage Payment Calculator. If the cash would pay off credit cards, compare that balance on the Credit Card Payoff Calculator before you move the debt onto the house. Neither result is a lender offer.

FAQ

What's the difference between cash-out refi, HELOC, and home equity loan?
Cash-out refinance replaces your existing mortgage with a new, larger one and gives you the difference in cash. A HELOC is a revolving credit line secured by your home equity, with a variable interest rate. A home equity loan is a one-time lump sum at a fixed rate, also secured by your equity. Cash-out refi changes your primary mortgage; HELOC and home equity loans are second loans on top of your existing mortgage.

I have a much lower rate than the refinance quote. Should I do a cash-out refinance?
Usually not, if the quote is higher than the rate on your statement. A cash-out refinance replaces the entire mortgage at the new rate, including the balance you already owe. A HELOC or home equity loan keeps the existing mortgage in place and charges the new rate only on the amount you borrow. The exception is when the second-loan options cannot provide the cash you need. Compare the written offers.

Are HELOC rates fixed or variable?
HELOC rates are usually variable, priced as an index such as the prime rate plus a margin the lender sets. When that index changes, the HELOC rate can change with it. A home equity loan is generally fixed for its term. A cash-out refinance is fixed at the rate on the closing disclosure. Confirm which one you are being offered.

Where do I find current rates for each option?
On the offers, not in an article. A cash-out refinance quote tracks the mortgage rate the lender will lock. A home equity loan quote is a fixed rate for that second loan. A HELOC quote is a variable rate, often an index plus a margin. For a published weekly mortgage average, see the Freddie Mac Primary Mortgage Market Survey. Compare at least three written offers. This page does not publish a current rate.

How much equity do I need to take out money?
The limit is the combined loan-to-value cap on the offer you receive. There is not one national cap. Hypothetical illustration only: if a lender capped all loans at 80 percent of value, a $400,000 home could carry $320,000 of loans in total. If you already owe $200,000, that illustration leaves $120,000 of room. Replace 80 percent and both dollar amounts with the figures on your appraisal and your loan estimate.

Is HELOC interest tax-deductible?
Interest on a home-secured loan is deductible only in the situations described in IRS Publication 936, generally when the money is used to buy, build, or substantially improve the home that secures the loan. Other uses, such as paying off credit cards, are treated differently. Read Publication 936 or ask a tax professional. This is not tax advice.

What happens to my HELOC if I sell the house?
The HELOC must be paid off at closing, just like your primary mortgage. The title company handles this from the sale proceeds. If your home equity (sale price minus all loans and fees) is positive, you keep the remainder. If you owe more than the home sells for, you would need to bring cash to closing or negotiate a short sale with your lenders.

Run your numbers

Enter your current balance, the rate on your statement, and the rate from a refinance quote in the Mortgage Payment Calculator. Compare that payment with the HELOC and home equity loan payments from the offers in front of you. The hypothetical example above is only a pattern for the arithmetic. If the cash would retire card balances, run those balances through the Credit Card Payoff Calculator first.

Sources

• Consumer Financial Protection Bureau: What is a home equity line of credit (HELOC)?
• Consumer Financial Protection Bureau: What is a home equity loan?
• Consumer Financial Protection Bureau: What you should know about home equity lines of credit (PDF)
• Consumer Financial Protection Bureau: Loan Estimate explainer and Closing Disclosure explainer
• Freddie Mac: Primary Mortgage Market Survey (weekly average rates; this page does not copy them)
• Internal Revenue Service: Publication 936, Home Mortgage Interest Deduction

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