Both routes turn home equity into cash — they differ in what they do to your existing mortgage. A cash-out refi reprices your entire balance at today's rate and restarts a 30-year term; a HELOC leaves a low-rate first mortgage untouched and adds a second lien. Because the two loans have different maturities, this compares cost at a common five-year mark: interest paid plus the balance you still owe.
| Scenario | Mortgage + HELOC | Refinance | Cheaper After 5 Years |
|---|---|---|---|
| $400K at 3.25% + $60K HELOC at 8.5% vs refi at 6.75% | $83,461 | $153,103 | Mortgage + HELOC by $96,087 |
| $400K at 6.5% + $60K HELOC at 8.5% vs refi at 6.75% | $146,919 | $153,103 | Mortgage + HELOC by $13,817 |
| $250K at 3.0% + $40K HELOC at 9.0% vs refi at 7.25% | $49,553 | $104,599 | Mortgage + HELOC by $81,973 |
Each row charges both paths the interest actually accrued in five years, then adds the principal still owed at that date so the two can be compared on equal footing. A refi reprices the whole balance at the new rate and adds closing costs, so at the five-year mark the principal retired barely differs; the HELOC, on a shorter term, has retired a meaningful share of its balance. That, not the interest bill alone, is where the low-rate-mortgage homeowner's advantage shows up.
A 30-year total-interest figure is often quoted for this decision and it is the wrong comparison. The two paths are different loans with different maturities: you cannot compare "interest over the life of a 24-year mortgage plus a 15-year HELOC" with "interest over a new 30-year mortgage" unless you fix a horizon. This calculator uses five years, which matches the typical window in which a homeowner refinances again or sells.
If your existing mortgage is at or above the refinance rate, repricing the balance is a rate cut rather than a rate increase, and the refinance can win despite starting a new 30-year term. It also wins when you need a fixed rate for decades and cannot tolerate a variable HELOC.
Home equity interest is deductible only when the borrowed money is used to buy, build or substantially improve the home that secures the loan. Using a HELOC or cash-out refi to consolidate credit cards or fund a business makes that interest non-deductible — even though the debt is secured by your house. The comparison above is pre-tax; if one path is deductible and the other is not, the after-tax gap is wider than the number shown.
A HELOC lender's recovery depends on home value after the first mortgage is repaid, so lenders can and do freeze undrawn lines when values fall. Anyone planning to draw later rather than immediately carries that risk. A cash-out refinance locks the money in at closing and cannot be frozen — one reason some borrowers deliberately choose the costlier path for a renovation they plan to start in a future year.
⚠️ Important: This comparison uses a fixed rate for both loans and a five-year horizon. It does not model a variable HELOC resets, interest-only draw periods, PMI, or the after-tax value of the mortgage interest deduction. A cash-out refinance also restarts the amortization clock. Get Loan Estimates from at least two lenders before deciding.