HELOC vs Cash-Out Refinance Calculator

How this calculator works

Both options give you the same cash and leave you owing the same total on day one — your current balance plus the cash you need — so the fair comparison is what each one costs: interest paid over the years you plan to keep the loan, plus closing costs. Principal you repay is not a cost; it is money you still have as equity. The calculator walks each loan month by month and adds up the interest.

Option A — keep your mortgage, add a HELOC

• Your existing mortgage continues unchanged: same rate, same remaining term, same principal & interest payment (taxes and insurance are left out — they are the same either way).
• The HELOC is assumed to be drawn in full on day one, at the rate you enter. During the draw period you pay interest only: balance × rate ÷ 12. When the draw period ends, the balance is repaid over the repayment period with the standard amortization formula, M = P · r(1 + r)ⁿ / ((1 + r)ⁿ − 1) — the same one the mortgage calculator uses.
• HELOC rates are variable — typically the prime rate plus a margin, so they move whenever prime does. Enter today’s quoted rate; the results include a stress line at +2 points.

Option B — cash-out refinance

• One new loan for your balance plus the cash, at the new rate, over the new term. A single fixed payment replaces your current one.
• Closing costs are treated as paid at closing (in practice they usually come out of the cash proceeds, which is the same thing). Enter them as a percentage of the new loan or a dollar figure from the lender’s estimate.
• Most lenders cap a cash-out refinance at 80% combined loan-to-value. If your balance plus cash exceeds 80% of the home’s value the calculator flags it and still runs the numbers.

The hidden cost: re-pricing your whole balance

A cash-out refinance does not just borrow the cash at the new rate. It moves your entire existing balance to the new rate too. If your current rate is lower than today’s, that is a real cost, and usually the largest number on the page. The calculator isolates it: the interest your existing balance alone would cost at the new rate and term over your horizon, minus what it costs on your current loan. That line is the price you pay for the convenience of one loan — and the reason a HELOC at a visibly higher rate can still be far cheaper. When your current rate is higher than the refinance rate, the same line turns into a saving, and the refinance starts to win.

Worked example

A $500,000 home with a $280,000 balance at 3.25% and 24 years left costs about $1,401/month in principal & interest. You need $60,000, and plan to keep whichever loan you choose for 7 years.

Option A: a HELOC at 8.5% with a 10-year draw period adds about $425/month of interest, so you pay about $1,826/month in total. Over seven years the mortgage costs about $57,200 in interest and the HELOC about $35,700, for a total cost of about $92,900 with no closing costs. At the end you still owe the full $60,000 on the HELOC plus about $219,400 on the mortgage. When the draw period ends in year 11 the HELOC payment rises to about $521/month over a 20-year repayment period; if the rate had climbed to 10.5% it would be about $599.

Option B: a cash-out refinance of $340,000 at 6.75% over 30 years with 3% closing costs ($10,200) has one payment of about $2,205/month. Over seven years it costs about $153,900 in interest plus the $10,200, a total of about $164,100, and you still owe about $308,700. The refinance costs about $71,300 more than the HELOC route — and about $69,600 of that is the cost of moving the $280,000 you already owe from 3.25% to 6.75%. The HELOC wins at every horizon from 3 to 10 years here.

Now flip the existing rate: the same home and cash, but a current mortgage at 7.5% and a refinance at 6.5%. Option A now costs about $173,600 over seven years and Option B about $158,100 — the refinance wins by about $15,500, because re-pricing the balance down a point saves roughly $16,100 of interest, more than enough to cover the closing costs, and it replaces a $2,524 combined payment with a single fixed $2,149.

When a HELOC usually wins

• Your current rate is well below today’s. Every point of gap on the whole balance is interest you would be paying for nothing.
• You need a modest amount relative to your balance, so the HELOC’s higher rate applies to a small slice.
• A shorter horizon. Refinance closing costs need years of savings to recoup; a HELOC often has none.
• You want flexibility — draw only what you need, when you need it, and repay early without penalty (check your terms).

When a cash-out refinance usually wins

• Your current rate is at or above the refinance rate, so re-pricing saves interest instead of costing it.
• You need a large amount — a big HELOC balance at a high variable rate, plus the payment jump after the draw period, adds up.
• You want one fixed payment and no exposure to rising rates.
• You will keep the loan long enough to get past the refinance break-even — check it with the refinance break-even calculator.

Variable-rate risk and the payment jump

The HELOC figures assume the rate you enter holds for the whole horizon. It will not: most HELOCs reset with the prime rate, often monthly, and many have lifetime caps well above the starting rate. Two things to plan for: the interest-only payment can rise at any time, and when the draw period ends the payment jumps to a fully amortizing one regardless of rates. The results show both. If either would strain your budget, the fixed payment of a refinance is worth paying something for.

A note on tax

Interest on a HELOC or the cash-out portion of a refinance may be deductible only if the money is used to buy, build or substantially improve the home that secures the loan; on a refinance, the new debt counts as home acquisition debt only up to the old balance (IRS Publication 936). You must itemize, and dollar limits apply. This calculator ignores tax; confirm your own situation with a tax professional.

Tips

• Get a HELOC quote and a cash-out refinance loan estimate from at least two lenders each, on the same day, and enter the real rates and fees here.
• Ask what the HELOC’s margin over prime is, whether the intro rate is temporary, and whether the repayment period is amortizing or a balloon.
• If you only need the cash for a few years, run the horizon at 3 and 5 years — the answer often changes.
• Sizing the payment against your income? Start with how much house can I afford.