Comparison · Home equity
HELOC vs cash-out refinance
This is the most consequential borrowing decision most homeowners make, and it is usually decided by a single number: the rate you are already paying.
Should you use a HELOC or a cash-out refinance?
It turns almost entirely on the rate you already have. A cash-out refinance re-prices your whole mortgage to reach a slice of equity, so if your current rate is below market you lose on the entire balance to borrow a fraction of it. A HELOC borrows only what you need and leaves the first mortgage untouched.
| 5 Day HELOC | Cash-out refinance | |
|---|---|---|
| What it does | Adds a second lien behind your mortgage | Replaces your entire first mortgage |
| Your existing rate | Untouched | Gone — the whole balance re-prices |
| Amount re-priced | Only what you draw | The full new balance |
| Typical speed | As few as 5 business days | 30–45 days |
| Closing costs | Lower | Full refinance costs |
| Rate type | Fixed on the drawn amount | Fixed or adjustable |
| Best when | Your current rate is below market | Your current rate is at or above market |
A HELOC usually wins when
- Your first mortgage is at a rate you could not get again today.
- You need a defined amount rather than a wholesale restructure.
- Speed matters — five business days against roughly six weeks.
- You would rather keep closing costs small.
A cash-out refinance usually wins when
- Your existing rate is at or above what is available now.
- You want everything in a single payment at one fixed rate.
- You are taking a very large amount relative to the balance.
- You also want to change the term, drop mortgage insurance, or leave an adjustable rate.
Worked through
Suppose you owe $340,000 at 3.5% and want $100,000. A cash-out refinance re-prices all $440,000 at today's rate. A HELOC prices only the $100,000 and leaves $340,000 sitting at 3.5%. Even at a higher HELOC rate, borrowing $100,000 expensively beats re-pricing $440,000 — and it is not close.
Frequently asked
Is a HELOC cheaper than a cash-out refinance?
On the rate alone, usually not — HELOC rates typically sit above first-mortgage rates. But the rate applies to a far smaller balance, and your existing first mortgage keeps its rate. Total interest cost is what matters, and that usually favours the HELOC when your current rate is below market.
Can you do a cash-out refinance and a HELOC?
Yes, though not usually at once. Some borrowers refinance first to improve the first-lien rate or term, then add a HELOC later for flexibility. Both are constrained by the same combined loan-to-value cap.
How much equity do you need for either?
Most conventional cash-out refinances require you to retain 20% equity, so a maximum 80% loan-to-value. HELOCs commonly reach 85% combined loan-to-value, which means a HELOC can often access more equity than a cash-out refinance.
Still not sure which applies to you?
Tell us the situation and we'll tell you which side of the comparison you're on.