HELOC vs. Cash-Out Refinance Calculator

A HELOC is a revolving line of credit secured by your home that acts as a second lien on your property. You draw funds as needed during a set draw period and pay a variable interest rate. A cash-out refinance replaces your existing mortgage entirely with a new, larger loan at a fixed rate, and you receive the difference as a lump sum. HELOCs offer more flexibility, while a cash-out refinance provides rate certainty.

HELOCs typically have much lower closing costs, often ranging from $0 to $500. A cash-out refinance, on the other hand, involves the same closing costs as a traditional mortgage -- usually 2% to 5% of the new loan amount. This difference can amount to thousands of dollars and is an important factor when comparing total costs.

Yes. A HELOC is a second lien on your property, meaning it exists alongside your primary mortgage. Your first mortgage stays in place with its existing terms and rate, and the HELOC provides additional borrowing capacity based on your available equity.

If rates are rising, a cash-out refinance can be advantageous because it locks in a fixed interest rate for the life of the loan. A HELOC carries a variable rate that adjusts with market conditions, so your payments could increase over time in a rising-rate environment.

Both options require a hard credit inquiry, which may temporarily lower your score by a few points. With a cash-out refinance, your existing mortgage is paid off and replaced with a new one, so your credit report will reflect the closed account and the new loan. A HELOC adds a new revolving credit line to your report without affecting your existing mortgage account.

Interest paid on both a HELOC and a cash-out refinance may be tax deductible if the funds are used to buy, build, or substantially improve the home that secures the loan. If the funds are used for other purposes, the interest is generally not deductible. Consult a tax professional for advice specific to your situation.