HELOC vs. Cash-Out Refinance in 2026: Which Costs Less?

The one question that decides most cases

Is the rate on your current mortgage lower than what you'd get on a new one? A cash-out refinance replaces your entire first mortgage at today's rate. A HELOC (home equity line of credit) leaves your first mortgage alone and adds a second lien just for the cash you need.

If your existing rate is well below today's, a HELOC usually costs less because you only pay a higher rate on the new money. If your existing rate is similar to or higher than today's, a cash-out refinance can make more sense — you get one loan, one payment and often a fixed rate.

A worked example

Say you owe $300,000 at 3.5% with 25 years left (principal and interest about $1,502 a month) and want $60,000 for renovations. These rates are examples only, not quotes.

What the example shows

• Keeping the 3.5% first mortgage saves roughly $250 to $350 a month in this example, because only $60,000 is borrowed at the higher rate.
• The HELOC's rate usually moves with the prime rate. If rates rise, the HELOC payment rises too. Some lenders offer a fixed-rate option or a fixed-rate home equity loan instead.
• Interest-only draw periods keep payments low early, but the balance doesn't shrink until you pay principal. Plan for the higher payment when the repayment period starts.
• Closing costs on a cash-out refinance are usually higher than on a HELOC, because you're replacing the whole mortgage. Compare total costs over the time you expect to keep the loan.

When a cash-out refinance still wins

• Your current rate is close to or above today's rates.
• You want one fixed payment and no rate risk.
• You're also removing mortgage insurance, changing the loan term or taking someone off the loan.
• You need more cash than a HELOC lender will allow.

Limits and rules to know

• Loan-to-value: cash-out refinances on a primary home are commonly limited to 80% of the home's value for conventional and FHA loans; VA cash-out can go higher for eligible veterans. HELOC limits vary by lender, often up to 80% to 90% combined.
• Texas homesteads: cash-out and home equity lines are generally limited to 80% of value across all liens, with specific notice and fee rules. See our Texas mortgage guide.
• Taxes: under current federal rules, interest on home equity debt is generally deductible only when the money is used to buy, build or substantially improve the home. Ask your tax advisor.

Our approach

Tell us your current balance, rate and how much cash you need. We'll price both routes from our lender network and show the monthly and total cost side by side, so the decision is about numbers, not guesswork.

Common questions