How to use this calculator
- Home. Enter what your home is worth, what you still owe on the mortgage, its rate and the years left. Together they set what keeping your mortgage costs.
- Refi. Enter the cash you need, a refinance rate and closing costs. The rate starts at 7.28%, Freddie Mac's average 30-year fixed rate for the week of October 1, 2026 (it switches to the 15-year average, 6.6%, if you pick a 15-year loan), and closing costs start at 3% of the new loan, the low end of what Freddie Mac says refinancing costs. Replace both with a lender's quote when you have one.
- HELOC. Enter a HELOC rate, any up-front fees, the draw and repayment periods, and how many years to compare. The rate starts at 8%: the prime rate, 7% on October 2, 2026, plus 1 point. Fees start at $0, as at Bank of America on lines up to $1,000,000; PenFed, by contrast, lists closing costs of $500 to $8,500 on a $500,000 line and a $99 annual fee.
- Results. Which option costs less over those years and by how much, the monthly payments and the break-even point. The breakdown above explains each number.
How the calculator compares the two
Both options put the same cash in your hands. What differs is what each costs while you owe it, so the calculator adds up the interest you would pay over the years you choose plus the up-front costs:
Mortgage + HELOC = mortgage interest + HELOC interest + HELOC fees
Cash-out refinance = interest on the new, bigger loan + closing costs
Example ($250,000 at 3%, $75,000 needed, 10 years): $123,934 vs. $239,477
This equals everything you pay minus how much your debt goes down. Because it treats a dollar repaid in year 1 like one repaid in year 10, the breakdown also compares the two in today's dollars and flags a close call when the measures disagree. The calculator assumes the whole HELOC is drawn on day one with interest-only payments during the draw period, a HELOC rate that does not change, and closing costs added to the new loan, which Fannie Mae allows on a cash-out refinance.
Should you do a cash-out refi with a 3% mortgage?
A cash-out refinance pays off your mortgage with a new, bigger one, so the new rate applies to everything you owe. In our example, $250,000 moves from 3% to 7.28% just to get $75,000. With a HELOC, the old balance keeps its 3% rate and only the new cash pays 8%: a blended 4.15% on day one. Over 10 years the HELOC option costs $115,543 less, and $72,298 less in today's dollars. For the refinance to come out ahead, the HELOC rate would have to average more than 23.41% for all 10 years.
How the answer changes with the rate on your current mortgage, everything else as in the example (25 years left, refinance at 7.28%, HELOC at 8%):
| Current rate | Mortgage + HELOC | Cash-out refi | Costs less over 10 years |
|---|---|---|---|
| 3% | $123,934 | $239,477 | HELOC, by $115,543 |
| 4% | $146,750 | $239,477 | HELOC, by $92,727 |
| 5% | $170,188 | $239,477 | HELOC, by $69,289 |
| 6% | $194,170 | $239,477 | HELOC, by $45,307 |
| 7% | $218,617 | $239,477 | HELOC, by $20,860 |
| 8% | $243,453 | $239,477 | Refinance, by $3,976 |
A cash-out refinance can come out ahead when:
- your current rate is close to or above today's refinance rates: in the example, from about 7.84% up;
- you have little or no mortgage left, so the refinance rate applies mostly to the new cash: with no mortgage, the example refinance at 7.28% costs $4,736 less over 10 years than the HELOC at 8%;
- you want one fixed-rate mortgage payment instead of a variable-rate line.
How much you can borrow with each
- Cash-out refinance. Fannie Mae's Eligibility Matrix caps a cash-out refinance at 80% of the home's value for a one-unit main home, and at 75% for two to four units or a second home. If the refinance pays off your current mortgage, that mortgage must be at least 12 months old. In the example, 80% of $450,000 is $360,000, so with 3% closing costs the most cash is about $99,200.
- HELOC. Lenders cap everything you owe on the home, the new line included. Bank of America says you can generally borrow up to 85% of your home's value minus what you owe, and PenFed allows 85% (80% in Texas and for condos). In the example that is a line of up to $132,500.
Cash-out refinance vs. HELOC at a glance
| Cash-out refinance | Mortgage + HELOC | |
|---|---|---|
| Your mortgage | Replaced by a bigger one; you get the difference in cash | Stays as it is, at its current rate |
| The new rate applies to | Everything you owe | Only what you draw from the line |
| Rate | Variable or fixed | Typically variable |
| Payments | One mortgage payment | Mortgage payment plus a HELOC payment, which can be interest-only during the draw period |
| Up-front costs | Generally higher; Freddie Mac says 3% to 6% of the loan | Some lenders charge none (Bank of America, on lines up to $1,000,000); others charge closing costs |
| Typical drawback | The rate may be higher than your current one; it may take longer to pay off your mortgage | The payment can change, and it rises when repayment starts |
Costs and risks to check
- Closing costs. Freddie Mac says refinancing typically costs 3% to 6% of the loan principal, for items such as the appraisal, title services, origination and recording. On the example's $335,052 loan, 6% would be $20,103.
- A higher rate for cash out. Freddie Mac says cash-out refinances generally have a slightly higher rate because you borrow more. The starting rate here is an average for home purchase loans with 20% down and good or excellent credit, so a cash-out quote may come in higher.
- A variable HELOC rate. HELOCs typically have variable rates, and the lenders we checked tie theirs to the prime rate. If the example HELOC rate were 2 points higher for all 10 years, the HELOC option would cost $138,934, still less than the refinance.
- The line can shrink. Federal rules let a lender freeze or reduce a HELOC if your home loses a lot of value or your finances get much worse.
- Your home is the collateral in both cases. If you cannot keep up with the payments, you could lose it.
- Taxes. The IRS treats a refinanced mortgage as home acquisition debt up to the old balance; the extra cash counts only if you use it to buy, build or substantially improve the home. The same test applies to HELOC interest: on cash used for anything else, it is not deductible.
Cash-out refinance vs. HELOC questions
Is it better to do a HELOC loan or a cash-out refinance?
It depends mostly on your current mortgage rate compared with today's refinance rates. A cash-out refinance moves your whole balance to the new rate; a HELOC charges its rate only on the cash you borrow. In our example ($250,000 left at 3% with 25 years to go, $75,000 needed, a refinance at 7.28% with 3% closing costs, and a HELOC at 8%), the HELOC option costs $115,543 less over 10 years. With the same numbers, the refinance only comes out ahead once the current mortgage rate is above about 7.84%; a higher cash-out rate would raise that point. Enter your own numbers in the calculator above.
What is the downside of a cash-out refinance?
The CFPB lists three typical drawbacks: closing costs are generally higher, it may take longer to pay off your mortgage, and the interest rate may be higher than your current mortgage. Freddie Mac says refinancing costs 3% to 6% of the loan principal and that cash-out refinances generally have a slightly higher rate. With a low-rate mortgage this adds up: in our example the refinance costs $115,543 more over 10 years than keeping the 3% mortgage and adding a HELOC. Like a HELOC, it is secured by your home.
What is the 2% rule for refinancing?
It is an informal rule of thumb, not a lender or government rule: refinance only when the new rate is well below your current one, and versions differ on how big the gap must be. Any such rule leaves out closing costs, how long you will keep the loan and, with a cash-out refinance, the cash you add. With a 3% mortgage, a cash-out refinance moves you to a higher rate, so a better test is the total cost of each option over the years you expect to keep it, and the break-even point. The calculator above shows both.
How much would a $100,000 HELOC cost per month?
At 8% (the prime rate of 7% plus 1 point), about $667 a month if you pay interest only during the draw period, then about $836 a month if you repay it over 20 years ($1,213 over 10 years). When the prime rate moves, a variable rate moves these payments with it.
How is a $50,000 home equity loan different from a $50,000 home equity line of credit?
A home equity loan pays you the whole $50,000 at once, at a fixed or adjustable rate, and regular payments pay it off. A HELOC is a credit line: you draw what you need, up to $50,000, usually at a variable rate, and some plans allow interest-only payments during the draw period. At 8% for both, a 20-year home equity loan would cost $418 a month from the start; the HELOC would cost $333 a month interest-only, then $418 over 20 years once the draw period ends. If you need more later, a home equity loan means applying for a new loan.
How to cut 10 years off a 30 year mortgage?
Pay extra principal every month, or refinance to a shorter term. In our example, the $335,052 cash-out refinance at 7.28% costs $2,292 a month over 30 years. Paying it off in 20 years takes $2,654 a month, $362 more, and saves about $188,264 of interest. Note that a cash-out refinance often adds years instead: here the 25 years left on the old mortgage become 30.
Sources
- Fannie Mae: Eligibility Matrix (August 5, 2026) - maximum LTV for cash-out refinances
- Fannie Mae Selling Guide B2-1.3-03: Cash-Out Refinance Transactions - 12-month rule, closing costs in the loan
- Freddie Mac: Primary Mortgage Market Survey - average 30-year and 15-year fixed rates
- Federal Reserve Bank of St. Louis (FRED): 30-Year Fixed Rate Mortgage Average
- Freddie Mac: Costs of refinancing
- Freddie Mac: Understanding your refinance options
- Federal Reserve Board: A Consumer's Guide to Mortgage Refinancings (2008) - extra principal payments
- CFPB: What you should know about home equity lines of credit - HELOC vs. cash-out refinance table
- CFPB: Home equity loan vs. HELOC
- 12 CFR 1026.40: requirements for home equity plans (Regulation Z)
- Federal Reserve Bank of St. Louis (FRED): Bank Prime Loan Rate
- IRS Publication 936: Home Mortgage Interest Deduction
- Texas Constitution, Article XVI, Section 50 (home equity lending)
- Bank of America: Home equity - HELOC cap, fees
- PenFed: Home Equity Line of Credit - HELOC caps
More calculators
- HELOC calculatorYour HELOC limit, the interest-only payment and the payment after the draw period ends.
- Home equity calculatorYour equity in dollars and percent, LTV and CLTV, and how much you may borrow at 80%, 85% and 90% caps.
- Home equity loan calculatorYour fixed monthly payment, total interest and estimated maximum loan, next to a HELOC on the same amount.
- Compare home equity optionsHELOC, home equity loan, cash-out refi, home equity investment, 401(k) loan: what each costs for your cash and timeline.
- Home equity investmentWhat a shared-equity deal really costs: your payback, the total cost and the cost a year, next to a loan.