Cash-out refinance vs HELOC
By David Chen · Published October 9, 2026
These two are usually compared on rate. A cash-out refinance is a first-lien mortgage and prices lower; a HELOC sits behind that mortgage and prices higher. The comparison looks settled before it starts, and on the money you are actually trying to borrow it usually is. What is missing is the rest of the balance.
Here is one house: worth $420,000, with a $254,328 balance left on a 6.50% loan and 240 months remaining. You want $60,000. There is $165,672 of equity to borrow against, so both routes are open.
Two ways to get the same $60,000
| Route | What you end up owing | Monthly payment now | Total interest |
|---|---|---|---|
| Cash-out refinance | $314,328 at 6.75% | $2,038.73 | $419,613 |
| Keep the loan, add a HELOC | $254,328 at 6.50% + $60,000 at 8.00% | $2,296.20 | $309,208 |
Cash-out refinance priced at 6.75% over 360 months; the alternative keeps the 6.50% first lien for its remaining 240 months and adds a $60,000 line at 8.00% with a ten-year interest-only draw and a twenty-year repayment. Both are measured across the same thirty years, by which point both are fully repaid. Figures are rounded independently, so components may differ from a column total by a dollar. Produced by our calculator and independently recomputed.
Before going further, one detail in the second row is worth pausing on. The $254,328 balance over its remaining 240 months has a payment of $1,896.20 — identical to the payment on the original $300,000 loan over 360 months. That is not a coincidence and not a rounding artifact: the remaining 240 payments are the second half of that original schedule. The loan gets cheaper to service as the balance falls, and the effect is exactly offset by having fewer years left to spread it over.
The $60,000 is cheaper through the refinance
This part is unsurprising and the numbers confirm it. A cash-out refinance borrows the $60,000 at 6.75%; a HELOC borrows it at 8.00%; over the life of the borrowing, the difference is $28,350 in favour of the refinance.
That would be the end of the comparison if the refinance borrowed only the $60,000. It does not. It replaces the existing loan, which means the $254,328 that was on a 6.50% loan with twenty years to run becomes part of a 6.75% loan with thirty years to run. 80.91% of the new loan is money you already owed, and all of it gets repriced.
Where the interest actually goes
Because both borrowings carry a single rate and amortise on a single schedule, the interest can be split exactly by principal share rather than estimated. That split is what makes the comparison visible:
| Interest paid on | Cash-out refinance | Keep the loan, add a HELOC | Difference |
|---|---|---|---|
| Interest on the $60,000 you want | $80,097 | $108,447 | −$28,350 |
| Interest on the $254,328 you already owe | $339,516 | $200,760 | +$138,756 |
| Total interest over 30 years | $419,613 | $309,208 | +$110,405 |
The split is exact rather than approximate: within one loan at one rate, principal and interest amortise in proportion, so interest divides by principal share. Thirty-year horizon. Figures are rounded independently, so components may differ from a column total by a dollar. Produced by our calculator and independently recomputed.
Two things make that number as large as it is, and both are in the terms rather than in the arithmetic. The rate goes up by a quarter of a point on the whole balance, because cash-out pricing is generally a little worse than rate-and-term pricing. And the term goes from 240 months back to 360 — so the $254,328 is charged interest for ten additional years. Either one alone would be costly; together they are what produces $138,756.
And the payment is lower
The cash-out refinance costs $2,038.73 a month against $2,296.20 for the loan-plus-HELOC route. It is $257.47 cheaper every month and $110,405 more expensive overall, and those two facts are not in tension — they are the same fact. Stretching a balance over thirty years instead of twenty is precisely what makes a payment smaller and a total larger.
The HELOC route borrows the payment problem in a different place. Its draw payment is only $400.00 — cheaper than either — but it is interest only, so it reduces nothing. When the ten-year draw ends you still owe $60,000, and repaying it over the remaining twenty years at the same rate costs $501.86, an increase of 25.47% for no change in the balance. That reset is a decade away at signing, which is exactly why it is easy to discount.
What to check before choosing
- How much of the new loan is old debt. Divide the existing balance by the new loan amount. Here it is 80.91%, which is why repricing dominates. If you had a small balance and wanted a large cash amount, the same comparison would come out the other way.
- How many years are left on the first loan. A refinance resets the term. If the existing loan has 20 years to run and the new one runs 30, you are buying a lower payment with ten extra years of interest — the arithmetic in how to refinance a mortgage applies to the cash-out version too.
- What the cash-out rate actually is. Cash-out pricing is often slightly worse than rate-and-term pricing on the same day, so the number to compare is the one quoted for the cash-out version rather than for a plain refinance.
- Whether the HELOC can be repaid on schedule. The HELOC route only wins if the draw period is used to pay principal or the repayment phase is genuinely affordable. An interest-only draw for ten years costs $48,000 and leaves the balance untouched; HELOC versus home equity loan prices that same $60,000 three ways and the gap between them is almost four-fold.
- What secures each option. Both put your home behind the borrowing. That is why both are cheaper than an unsecured personal loan, and it is why the consequences of missing payments are larger.
Which one to pick
The useful question is not which product is cheaper in the abstract, but whether you also want to change the first loan. If you do — because you want a lower rate, or a different term, or to consolidate everything into one payment — then a cash-out refinance is doing two jobs at once, and the $138,756 is the price of the second job. If you are happy with the first loan and only want the $60,000, a second lien leaves the good loan alone, and the $28,350 premium you pay on the new money is the price of that restraint. Both are defensible; the failure mode is doing the first while believing you are doing the second.
To see what the refinance does on your own balance, the mortgage calculator prices any rate and term, and the amortization schedule shows how much of the new thirty years is spent on interest rather than principal. You can also check what cash-out does to your loan-to-value ratio with the affordability calculator.
The short version
Taking $60,000 out of a house with a $254,328 balance: a cash-out refinance at 6.75% over thirty years costs $419,613 in interest, and keeping the 6.50% loan while adding a HELOC at 8.00% costs $309,208. The refinance is $28,350 cheaper on the $60,000 and $138,756 more expensive on everything else, netting $110,405 against it — while showing a monthly payment $257.47 lower. The rate on the money you want is not the cost of the money you already owe.
Frequently asked questions
Is a cash-out refinance cheaper than a HELOC?
On the money you actually want, usually yes. On the money you already owe, usually no. Borrowing $60,000 against a $254,328 balance: through a cash-out refinance the $60,000 costs $80,097 in interest, while a HELOC on the same $60,000 costs $108,447 — so the refinance is $28,350 cheaper on the new money. But the refinance also reprices the $254,328 you already had, and that costs $138,756 more. The net is $110,405 against the refinance.
Why does a cash-out refinance cost more if the rate is lower than a HELOC?
Because the lower rate applies to the whole balance, not just the new money. A cash-out refinance replaces the existing loan, so the $254,328 that was on a 6.50% loan with 240 months left becomes part of a new 6.75% loan running 360 months. The rate on the new money is better; the rate and the term on the old money are both worse. On this example 80.91% of the new loan is money you already owed.
Why is the cash-out payment lower if it costs more?
Because payments and costs are different questions. The cash-out refinance payment is $2,038.73 against $2,296.20 for the loan-plus-HELOC route — $257.47 lower every month — and yet it costs $110,405 more in total. The payment is lower because the loan was stretched back to thirty years. That is the trade: a smaller monthly figure in exchange for a larger total, which is the same mechanism that makes ordinary refinances look attractive.
What happens to a HELOC when the draw period ends?
If you paid interest only, the balance is exactly where it started. On $60,000 at 8.00% the draw payment is $400.00 a month for ten years, after which you still owe $60,000 and repay it over the remaining term. Over a twenty-year repayment at the same rate the payment becomes $501.86 — 25.47% higher — with no change in what you owe. That reset date is the single most important thing to budget for in a line of credit.
Which should I use for a renovation?
The shape of the need usually decides it. A known cost paid to a contractor in stages fits a HELOC, because you can draw as the work proceeds and only pay interest on what you have drawn. A single fixed amount with a defined end date fits a fixed home equity loan better, because the payment does not reset. A cash-out refinance makes sense mainly when you also want to change the terms of the first loan — which is exactly the case where you must check what it does to the whole balance, not just to the new money.
Related guides
- HELOC vs home equity loan — The same $60,000 at the same 8.00% costs either $27,356 or $108,447 in interest. What the two products share, where they diverge, and why the draw period drives the whole bill.
- How to refinance a mortgage — Why a lower rate can still cost you more: a 6.50% to 6.00% refinance cuts the payment by $371.38 and adds $93,849 of interest, while the same rate on a 20-year term saves $17,788.
- Refinance break-even point — How to work out the month a refinance pays for itself, why a shorter term can raise your payment and still save six figures, and when not to refinance.
- Closing costs explained — The three groups on a closing bill, what can be negotiated and what cannot, and the arithmetic of discount points — including why buying twice as many points barely changes the break-even month.
Run your own numbers in the loan calculator.
Calculators for this topic
- Mortgage calculator — Monthly payment with property tax, home insurance, HOA and PMI folded in — the number that actually leaves your account, not just principal and interest.
- Amortization schedule — The full month-by-month and year-by-year breakdown of a fixed-rate loan, and how much interest an extra payment removes from the end of it.
- Personal loan calculator — Unsecured borrowing at the rates lenders actually quote, with the origination fee maths that decides whether the money is worth taking.
This guide is educational and is not financial advice. Figures were produced by our calculator and independently recomputed before publication; your lender's own documents govern your loan. Spot an error? Tell us — see also our disclaimer.