Finance

HELOC vs Home Equity Loan vs Cash-Out Refinance

7 min read March 2026 Home Equity, Refinancing, Loans

Key Takeaways

A HELOC gives you flexible, revolving access to equity at a variable rate. A home equity loan delivers a lump sum at a fixed rate with predictable payments. A cash-out refinance replaces your entire mortgage with a new, larger loan and hands you the difference in cash. The right choice depends on how much you need, how quickly, and whether you value rate stability over flexibility.

Side-by-Side Comparison

Feature	HELOC	Home Equity Loan	Cash-Out Refinance
Interest Type	Variable	Fixed	Fixed
Funding	Revolving line of credit	Lump sum	Lump sum
Closing Costs	$0–$500 (often waived)	2%–5% of loan	2%–6% of entire loan
Interest Rates (2026 avg.)	8.5%–10.5%	8.0%–9.5%	6.5%–7.5%
Repayment Term	10–20 yr repayment	5–30 years	15–30 years (new mortgage)
Tax Deductible	Yes, if used for home improvements	Yes, if used for home improvements	Yes, if used for home improvements
Best For	Ongoing projects, flexible needs	One-time large expense	Large cash need + rate improvement
Risk Level	Medium–High (rate fluctuation)	Low (fixed payments)	Medium (resets mortgage term)

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Reviewed methodology

How this page is reviewed

YMYL · Last verified 2026-05-10

See methodology, assumptions & sources

Risk tier	YMYL
Author	Calculover Editorial Team Finance and legal education
Editorial owner	Calculover Loans & Housing Desk Loan and housing methodology owner
Reviewer	Calculover Editorial Review Source and limitation review
Last reviewed	2026-05-10
Last verified	2026-05-10
Data effective date	2026-05-10

Methodology

HELOC vs Home Equity Loan vs Cash-Out Refinance uses the amortization, escrow, rate, fee, and housing-cost formulas documented on the page, then layers loan-program or property-cost assumptions when the user provides them.

Assumptions

HELOC vs Home Equity Loan vs Cash-Out Refinance relies on the values the user enters and does not independently verify income, balances, legal status, policy terms, or market quotes.
Loan rates, fees, taxes, insurance, PMI or MIP, HOA dues, and closing costs are planning inputs unless a lender quote is supplied.
The calculator assumes scheduled payments are made on time and that extra payments are applied according to the selected scenario.

Limitations

HELOC vs Home Equity Loan vs Cash-Out Refinance does not approve a loan, lock a rate, quote closing costs, determine program eligibility, or replace a Loan Estimate from a lender.
Property taxes, insurance, HOA dues, PMI or MIP, lender overlays, credit score, and local fees can materially change the payment or cash-to-close.

Sources

Buying a House, Consumer Financial Protection Bureau
Loan Estimate Explainer, Consumer Financial Protection Bureau
Mortgage Rates, Freddie Mac

Professional guidance: HELOC vs Home Equity Loan vs Cash-Out Refinance is for housing-finance education only and is not mortgage, legal, tax, or underwriting advice. Confirm rates, fees, eligibility, and cash-to-close with a lender or housing professional.

What Is a HELOC?

A Home Equity Line of Credit (HELOC) works like a credit card secured by your home. You get a revolving credit line based on your equity and can draw funds as needed during a 5–10 year draw period. You only pay interest on what you borrow. After the draw period ends, you enter a 10–20 year repayment period where you can no longer borrow and must pay back both principal and interest.

HELOCs carry variable interest rates tied to the prime rate. When rates rise, your monthly payment increases. Some lenders offer a fixed-rate conversion option that lets you lock in a portion of your balance.

What Is a Home Equity Loan?

A home equity loan (sometimes called a second mortgage) gives you a one-time lump sum at a fixed interest rate. You repay it in equal monthly installments over a set term, typically 5–30 years. Because the rate is fixed, your payment never changes.

Home equity loans are ideal when you know exactly how much you need upfront — for example, a kitchen renovation with a firm contractor bid. Closing costs are moderate, typically 2%–5% of the loan amount.

What Is a Cash-Out Refinance?

A cash-out refinance replaces your existing mortgage with a brand-new, larger mortgage. You pocket the difference between the new loan and your old balance as cash. Unlike HELOCs and home equity loans, this is not a second lien — it is a completely new first mortgage.

This option makes the most sense when current mortgage rates are lower than your existing rate, because you can reduce your rate and access cash simultaneously. However, if rates have risen since you got your original mortgage, a cash-out refi means giving up your lower rate on the entire balance.

When to Choose Each Option

Choose a HELOC when…

You need funds over time, not all at once
You want to pay interest only on what you use
You have a home renovation with phased costs
You want a low-cost safety net for emergencies
You can handle potential rate increases

Choose a Home Equity Loan when…

You know the exact amount you need upfront
You want a fixed rate and predictable payments
You're funding a single large project (roof, addition)
You prefer simplicity over flexibility
You want to consolidate high-interest debt

Choose a Cash-Out Refi when…

Current rates are lower than your existing mortgage rate
You want to access a large amount of equity
You prefer a single monthly payment (no second lien)
You want to extend your mortgage term for lower payments
You need $50,000+ and want the lowest possible rate

Real-World Example

$400,000 Home — $250,000 Mortgage Balance — $150,000 Available Equity

HELOC ($50,000 draw): Variable rate at 9.0%. Monthly interest-only payment during draw period: $375/mo. Total interest over 10-year draw + 15-year repayment: ~$29,500. Closing costs: $0.

Home Equity Loan ($50,000): Fixed rate at 8.5%, 15-year term. Monthly payment: $492/mo. Total interest paid: $38,600. Closing costs: ~$1,500.

Cash-Out Refinance ($300,000 new mortgage): Fixed rate at 6.75%, 30-year term. Monthly payment: $1,946/mo (replaces your $250K mortgage payment). Total interest on the full $300K over 30 years: ~$400,500. Closing costs: ~$9,000.

The HELOC costs the least if you repay quickly. The home equity loan offers predictability. The cash-out refi has the lowest rate but the highest total cost because you're refinancing your entire mortgage over a new 30-year term.

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Frequently Asked Questions

What is the difference between a HELOC and a home equity loan?

A HELOC is a revolving line of credit with a variable interest rate — you draw funds as needed during a 5–10 year draw period. A home equity loan gives you a lump sum with a fixed rate and fixed monthly payments from day one. Both use your home as collateral.

Does a cash-out refinance replace my current mortgage?

Yes. A cash-out refinance replaces your existing mortgage with a new, larger loan. You receive the difference in cash. This means you start a brand-new loan term and your interest rate resets to current market rates.

Is HELOC interest tax deductible?

Interest on HELOCs, home equity loans, and cash-out refinances is tax deductible if the funds are used to buy, build, or substantially improve the home securing the loan. Interest on funds used for other purposes (debt consolidation, vacations, etc.) is generally not deductible.

How much equity do I need for a HELOC or home equity loan?

Most lenders require at least 15%–20% equity in your home after the loan. For example, if your home is worth $400,000, you'd typically need to keep at least $80,000 in equity, meaning you could borrow up to $320,000 minus your existing mortgage balance.

Which option has the lowest closing costs?

HELOCs typically have the lowest closing costs, often under $500 or even waived by the lender. Home equity loans have moderate closing costs (2%–5% of the loan). Cash-out refinances have the highest closing costs since you're refinancing the entire mortgage, typically 2%–6% of the new loan amount.