HELOC vs Cash-Out Refinance Calculator

HELOC vs Cash-Out Refinance: The Core Trade-off

Both options convert home equity into cash. The difference is what happens to your first mortgage. A HELOC is a second lien that sits on top of the existing first mortgage. A cash-out refinance replaces the first mortgage entirely with a new, larger loan. If your current first-mortgage rate is below the market, a HELOC preserves that rate. If your current rate is above the market, a cash-out refinance captures the savings on the entire balance.

The math is not just about the rate. A cash-out refinance resets the amortization clock back to 30 years, which lowers the monthly payment but increases the total interest over the life of the loan. A HELOC has a 10-year draw period followed by a 20-year repayment, which is a shorter effective term and less total interest. Run both numbers before deciding.

When a HELOC Wins

A HELOC wins in three scenarios. First, when your current first-mortgage rate is significantly below the market — you would be giving up a 3.5% mortgage to take a 6.5% refinance, which is a net loss on the existing balance. Second, when the cash you need is small relative to the mortgage balance, because closing costs on a refi are a fixed percentage of a larger loan. Third, when you want flexibility — a HELOC is a revolving credit line, so you only pay interest on what you draw.

On a $300,000 first mortgage at 3.5%, a HELOC at 8.5% on $50,000 costs about $42,500 in interest over the draw-and-repay cycle. A cash-out refinance of the same $350,000 at 6.5% costs about $95,000 in additional interest over 30 years compared to the original mortgage. The HELOC wins decisively — the 3% rate difference on the first mortgage dwarfs the difference on the equity draw.

When a Cash-Out Refinance Wins

A cash-out refinance wins when your current first-mortgage rate is above the market. If you are sitting on a 7.5% mortgage and the market is at 6.0%, a cash-out refinance lets you capture the 1.5% savings on the entire balance while extracting equity in the same transaction. The interest savings on the first mortgage often exceed the closing costs within 24 to 36 months.

The second scenario is when you need a large amount of cash relative to the home value — above $100,000. HELOC limits are capped at 85% to 90% CLTV, which may not cover the need. A cash-out refinance can access up to 80% LTV in a single loan, sometimes 85% with strong credit. The third scenario is when you want a fixed rate for the entire balance. HELOCs are variable-rate by definition; a cash-out refinance locks the rate for the full term.

Break-Even Math: How Many Months Until Refi Pays Off

The break-even point is the number of months it takes for the interest savings on the refinanced first mortgage to exceed the closing costs paid upfront. Divide the closing costs by the monthly payment reduction on the original balance. If closing costs are $7,000 and the refi saves $200 per month on the original mortgage, the break-even is 35 months — just under 3 years. If you plan to sell or refinance again before then, the cash-out refi loses money.

The calculator shows the break-even number directly. It also nets out the extra cost of the cash-out portion, so you are comparing the full picture, not just the first-mortgage piece. The HELOC side shows the total interest over the draw and repayment periods, which is the true cost of the credit line.

Which Option Do Lenders Approve Faster?

HELOCs close in 2 to 4 weeks with most online lenders, sometimes 10 to 14 days with a credit union you already bank with. Cash-out refinances take 30 to 45 days because they go through full first-mortgage underwriting: appraisal, title search, income verification, and the full documentation package. If you need the cash quickly, the HELOC timeline is the practical choice.

Approval odds also differ. HELOC lenders weigh your credit score, CLTV, and existing relationship with the bank. Cash-out refinance lenders are stricter — they underwrite the entire new mortgage, including debt-to-income (DTI) with the new payment. If your DTI is already tight, the HELOC may be the only option that gets approved.