About the HELOC vs Cash-Out Refinance Calculator
This calculator compares the two most common ways to turn home equity into cash. A cash-out refinance replaces your current mortgage with a bigger new loan at today’s rate and hands you the difference. A home equity line of credit (HELOC) leaves your first mortgage alone and adds a second, usually variable-rate line that is interest-only during the draw period and then repays over a set term.
Enter your current mortgage, the cash you need, and the rate and costs quoted for each option. The calculator adds up the interest and upfront fees of each path over the number of years you expect to keep the debt, and shows the monthly payment you would make under each. Because both options start with the same total debt, interest plus fees is a fair like-for-like measure of cost.
The key trade-off is your existing rate: refinancing reprices your whole balance, so a low-rate first mortgage usually favours a HELOC even though HELOC rates are higher. The HELOC rate is treated as fixed and the full amount is assumed to be drawn on day one; real HELOC rates float with the prime rate.
With the default inputs, the savings with the cheaper option is $61,985.75. Change any value above to recalculate instantly.
How to use the heloc vs cash-out refinance calculator
- 1Enter your current mortgage balance, rate and years remaining.
- 2Enter how much cash you need to borrow against the home.
- 3Add the cash-out refinance rate, term and closing costs from a lender quote.
- 4Add the HELOC rate, draw and repayment periods and any fees.
- 5Set how many years you expect to keep the debt and compare total cost and payments.
Formula and method
Both paths begin with the same total debt — your current balance B plus the cash C — so the fair comparison is the interest and upfront fees each one costs over the years you keep it. For the cash-out refinance the calculator amortizes a new loan of B + C at the refinance rate and adds closing costs as a percentage of the new loan.
For the HELOC route your existing mortgage keeps amortizing at its current rate, and the HELOC is charged interest only during the draw period, then repaid in level monthly payments over the repayment period. Interest is computed month by month with the standard amortization formula. The HELOC rate is held constant and the full line is assumed to be drawn at once, so treat the HELOC figure as a base case.
- B
- Current mortgage balance
- C
- Cash you want to take out
- r_h
- Monthly HELOC rate (annual rate ÷ 12)
- H
- Years you expect to keep the debt
Worked examples
4% mortgage, $60k needed, 10-year horizon
Refinancing $310,000 at 6.5% costs about $187,935 of interest over 10 years plus $9,300 of closing costs, a total of $197,235. Keeping the 4% mortgage costs about $86,750 of interest, and the $60,000 HELOC at 8% costs $48,000 of interest-only payments plus $500 in fees. The HELOC route is about $61,986 cheaper.
Current rate close to today’s rate
When the existing loan is already at 6.25%, refinancing to 6.375% barely raises the cost of the old balance, while a 9% HELOC is expensive. Over 15 years the cash-out refinance costs about $268,097 in interest and fees against roughly $273,846 for the HELOC route, about $5,749 more.
Short horizon of 3 years
If you expect to sell or repay within three years, closing costs weigh heavily: the refinance costs about $68,732 in interest and fees versus roughly $43,839 for keeping the 4% loan and adding the HELOC.
Frequently asked questions
Is a HELOC or a cash-out refinance better?+
A HELOC is usually cheaper when your current mortgage rate is well below today’s rates, because a refinance reprices the whole balance. A cash-out refinance can win when your existing rate is similar to or higher than current rates and you want one fixed payment.
Why are HELOC payments so low at first?+
Most HELOCs are interest-only during the draw period, often 10 years. When the repayment period starts you must repay principal too, so the payment can jump sharply — this calculator shows both payments.
Do HELOCs have closing costs?+
Many lenders waive most HELOC closing costs, but you may pay an appraisal, an origination fee, an annual fee or an early-closure fee. Cash-out refinances carry full closing costs, typically 2% to 5% of the new loan amount.
Is HELOC interest tax deductible?+
For US federal taxes, interest on a HELOC or cash-out refinance is deductible only if the money is used to buy, build or substantially improve the home securing the loan, and only if you itemize. Interest on cash used for other purposes is not deductible.
What happens if HELOC rates rise?+
Most HELOC rates are tied to the prime rate, so your payment rises when the Federal Reserve raises rates. Some lenders let you lock part of the balance at a fixed rate. A cash-out refinance with a fixed rate avoids this risk.
Results are estimates for educational purposes and are not financial advice. Rates, fees and terms vary — confirm with your lender or a licensed advisor before making decisions.