Cash-Out Refinance vs. HELOC Calculator
See whether a cash-out refinance or a home equity line costs less when you need cash and want to keep an eye on your current mortgage rate.
Cash-Out Refinance or HELOC?
There are two common ways to turn home equity into cash. A cash-out refinance replaces your mortgage with a larger one and gives you the difference. A home equity line of credit, or HELOC, leaves your mortgage alone and adds a second loan that you draw from as needed.
If your current mortgage rate is well below today’s rates, a cash-out refinance means giving up that rate on your entire balance. A HELOC usually carries a higher rate, but only on the money you borrow. This calculator compares the monthly payment and the total interest for both.
Example: You owe $350,000 at 3.5% and need $100,000. A cash-out refinance at 6.75% has a payment of about $2,958. Keeping your loan and adding a HELOC at 8.5% with interest-only payments costs about $2,464 a month, and your blended rate is about 4.6%.
Common Questions
When does a cash-out refinance make more sense?
When your current rate is close to or above today’s rates, when you want a fixed payment, or when you need a large amount relative to your balance.
What are the risks of a HELOC?
Most HELOCs have variable rates, so the payment can rise. Interest-only payments do not reduce the balance, and the payment increases when the draw period ends.
How much equity can I borrow?
Most cash-out refinances are limited to 80% of the home’s value. HELOCs and second mortgages often allow a combined loan-to-value of 85% to 90%.