How each option works
A home equity line of credit (HELOC) is a separate loan secured by your home, in addition to your existing mortgage. You're approved for a maximum credit limit (often 80% to 85% of home value minus existing mortgage balance), and you can draw from it as needed during the draw period (typically 10 years), paying interest only on what you draw.
A cash-out refinance replaces your existing mortgage with a new, larger loan. You receive the difference between the new loan and your existing balance as cash at closing. The new loan's rate, term, and lender all reset.
The fundamental difference: a HELOC keeps your existing mortgage in place; a cash-out refinance replaces it. This sounds technical but matters enormously when your existing rate is below current market rates.
Why the rate spread matters
Imagine you locked a 4% mortgage in 2021. You have $300,000 remaining and you need $50,000 in cash for renovations.
Cash-out refinance option: replace your $300,000 at 4% with a new $350,000 at today's 6.5%. Your monthly payment jumps significantly, and you're now paying 6.5% on the entire balance, not just the new $50,000.
HELOC option: keep your $300,000 at 4% in place. Take a $50,000 HELOC at 8.5%. You pay 4% on the existing $300,000 and 8.5% only on the $50,000 you actually borrowed.
Even though the HELOC rate (8.5%) is higher than the refi rate (6.5%), the math usually favors HELOC by tens of thousands of dollars over a 5-to-10-year horizon. The difference is the protection of your existing low rate on the bulk of your debt.
When cash-out refinance actually wins
Refinance wins in three specific situations:
Your current rate is at or above today's refi rate. If you locked at 7% and refi rates are now 6.5%, refinancing replaces a higher rate with a lower one across the entire balance. The HELOC advantage of "protecting your low rate" doesn't apply because your rate isn't low.
You need a large amount relative to your balance. If you need $200,000 and your existing balance is $250,000, the HELOC math gets less favorable. The HELOC interest charge on that much principal can outweigh the protection of the existing rate.
You'll hold the loan long enough to recoup closing costs. Cash-out refinance closing costs are $5,000 to $15,000. Over a 10-year hold, even a small rate advantage can recoup that. Over a 2-year hold, it usually can't.
Other things that affect the answer
HELOC variable rates. The calculator uses today's HELOC rate as a constant. Real HELOCs are variable; the rate moves with prime. If prime drops, your HELOC interest charges drop. If prime rises, they rise. The risk is asymmetric to the homeowner.
Tax deductibility. Mortgage interest is generally deductible (subject to the $750,000 cap and itemization rules). HELOC interest is deductible only if used for substantial home improvements. If you're using the cash for non-home purposes, the tax treatment can shift the calculation. Consult a tax professional.
Speed and complexity. HELOCs typically close in 2 to 4 weeks. Cash-out refinances take 30 to 60 days. If timing matters (urgent renovation, time-sensitive opportunity), HELOC wins on speed alone.
Discipline. A HELOC gives you ongoing access to credit. Some homeowners find this dangerous; others find it convenient. Self-knowledge matters here.
A third option to consider
Neither HELOC nor cash-out refinance is the only way to access cash. If you're funding renovations, a renovation-specific loan (FHA 203(k) or Fannie Mae HomeStyle) may have better terms. If you're funding tuition, a federal student loan probably has lower rates than either option. If you're funding debt consolidation, a personal loan at fixed rates may avoid putting your home at risk.
The HELOC vs. refi comparison only makes sense once you've ruled out non-mortgage options. Don't put your home at risk to fund things that cheaper credit can fund.
Frequently asked questions
When is a HELOC better than refinancing?
When your existing mortgage rate is below today's refinance rate. The HELOC lets you keep the low rate on the bulk of your debt and pay the higher rate only on the new amount.
When is cash-out refinance better?
When your current rate is at or above today's refi rate, the cash needed is large relative to your balance, and you'll hold the loan long enough to recoup closing costs.
What are typical HELOC rates today?
As of 2026, HELOC rates are typically in the 8% to 10% range for good-credit borrowers, varying with the prime rate.
Are HELOC closing costs lower?
Generally yes. Many HELOCs have $0 closing costs; others charge $200 to $500 for appraisal. Cash-out refinances have full closing costs of $5,000 to $15,000.
Is HELOC interest tax deductible?
Only if proceeds are used for substantial home improvements that increase the home's value. Otherwise no. Cash-out refinance interest follows similar rules.