Cash-out refinance vs HELOC: which is better when your rate is low?
If your current mortgage rate is well below today’s rates, a HELOC is usually the cheaper way to get cash, because it leaves that low rate untouched. A cash-out refinance tends to win when your current rate is at or above the market, or when you want one fixed-rate loan for the whole amount. With the average 30-year fixed rate at 7.40% (Freddie Mac, week of October 15, 2026), that first question decides most cases.
Below: how the two compare side by side, a worked example with real numbers, and the situations where a cash-out refinance comes out ahead. When you are ready, LenderMatch lets you describe your situation once and compare what lenders offer.
Cash-out refinance vs HELOC: the difference
A cash-out refinance replaces your existing mortgage with a bigger one and pays you the difference in cash at closing. You end up with one loan and one payment, but your entire balance moves to the new rate.
A HELOC (home equity line of credit) leaves your first mortgage alone and adds a second loan behind it. It works like a credit line: you can borrow, repay and borrow again during a draw period, and you pay interest only on what you use. (New to HELOCs? Start with what a HELOC is and how it works.)
Cash-out refinance vs HELOC side by side
| Feature | Cash-out refinance | HELOC |
|---|---|---|
| Rate type | Fixed or adjustable (CFPB) | Typically variable: an index such as the prime rate plus a margin (CFPB) |
| Your first mortgage rate | Replaced. The whole balance moves to the new rate | Kept. Your first mortgage does not change |
| Closing costs | 3% to 6% of the loan principal (Freddie Mac). The CFPB says they are generally higher than for a HELOC | Varies. Some lenders waive some or all up-front costs; others charge appraisal, application and closing fees (CFPB) |
| How you get the money | One lump sum at closing | Draw what you need, when you need it, up to your limit |
| Typical max loan-to-value | 80% for conventional (Fannie Mae) and FHA; up to 100% for VA (VA.gov) | Set by each lender as a percentage of appraised value, minus what you owe (CFPB) |
| Payments | One fixed payment if you choose a fixed rate | Can change with the rate; often much higher once the repayment period starts (CFPB) |
Loan-to-value limits shown are for a one-unit primary residence. See how much equity you can borrow for the math in dollars. If your home is in Texas, the state constitution adds its own rules for home equity borrowing; see our Texas HELOC guide.
Is a cash-out refinance better than a HELOC? A worked example
Say your home is worth $450,000. You owe $260,000 on a 3.00% mortgage with 25 years left, and your principal and interest payment is about $1,233 a month. You need $60,000 for a renovation. Here are your two paths.
Cash-out refinance: a new 30-year loan for $320,000. At 7.40%, the Freddie Mac average for the week of October 15, 2026, principal and interest is about $2,216 a month. Closing costs at 3% to 6% would run $9,600 to $19,200.
HELOC: keep the 3.00% loan and open a $60,000 line. For illustration, assume a HELOC rate of 8.00% (the 7.00% prime rate as of October 20, 2026, plus a 1.00% margin; your margin depends on the lender and your profile). Interest-only payments during the draw period would be $400 a month.
| Monthly cost | Cash-out refi | Keep 3% + HELOC |
|---|---|---|
| First mortgage | $2,216 | $1,233 |
| HELOC (interest only at 8.00%) | $0 | $400 |
| Total per month | $2,216 | $1,633 |
| Average rate on $320,000 | 7.40% | 3.94% |
The HELOC path costs about $583 less per month in this example, and your blended rate on all $320,000 of debt is 3.94% instead of 7.40%. Even if the HELOC rate rose to 10.00%, the interest-only payment would be $500 and the total would still be far below the refinance.
Two caveats. Interest-only payments do not pay down the line; repaying $60,000 over 20 years at 8.00% would cost about $502 a month. And the HELOC rate can move, so plan for payments that change. Run your own numbers in the home equity calculator.
When a cash-out refinance wins instead
Change one number in the example: your current rate is 7.875%, not 3.00%. Your payment on the $260,000 balance would be about $1,985. Add the $400 HELOC payment and you pay $2,385 a month, versus $2,216 for a cash-out refinance at 7.40% that covers everything. Now the refinance lowers your rate on the whole balance and gets you the cash in one move.
In this example the crossover sits at a first-mortgage rate of about 7.26%. Above that, one 7.40% loan costs less in interest than keeping the old loan plus an 8.00% line (before closing costs). A cash-out refinance can also make sense when:
- You want a fixed rate and a predictable payment on the full amount.
- You need one large sum now, not money in stages.
- You are an eligible veteran: VA cash-out refinances can go up to 100% of appraised value (VA.gov).
- You plan to stay long enough to earn back the closing costs.
HELOC vs cash-out refinance pros and cons
HELOC
- Pros: keeps your first mortgage rate; you pay interest only on what you draw; up-front costs are often lower, and some lenders waive them (CFPB).
- Cons: usually a variable rate; payments can jump when the draw period ends and repayment begins; some plans require a balloon payment of the full balance (CFPB).
Cash-out refinance
- Pros: one loan and one payment; can be fixed for the full term; can lower your rate if yours is above market.
- Cons: resets your whole balance to today’s rate; closing costs of 3% to 6% (Freddie Mac); the CFPB notes it may take longer to pay off your mortgage and the rate may be higher than your current one.
Cash-out refinance closing costs, explained
Freddie Mac puts the total cost to refinance at 3% to 6% of the loan principal, set by your lender, credit score and location. Typical items include origination, appraisal, credit report, title, recording and underwriting fees. Because the percentage applies to the whole new loan, not just the cash you take out, borrowing $60,000 through a $320,000 refinance means paying costs on $320,000.
“No closing cost” offers exist, but the CFPB explains that the cost is usually covered by a higher interest rate or added to your loan balance. Either way you still pay it.
Should I do a cash-out refinance or HELOC?
- Compare your rate to today’s. Well below 7.40%? Lean HELOC. At or above? A cash-out refinance deserves a look.
- Check how you will use the money. One known sum favors the refinance. Costs that arrive in stages favor a line.
- Decide how much rate risk you can carry. If a changing payment would strain your budget, weigh a fixed-rate option.
- Get more than one quote. Rates, margins and fees differ by lender. Worried about your score? Read does rate shopping hurt your credit.
Frequently asked questions
Is a cash-out refinance better than a HELOC?
It depends mostly on your current mortgage rate. If your rate is well below today’s 30-year average (7.40% for the week of October 15, 2026, per Freddie Mac), a HELOC usually costs less because it leaves that low rate in place. If your rate is at or above today’s market, a cash-out refinance can lower your rate and give you cash in one loan.
Can I do a cash-out refinance and keep my current interest rate?
No. A cash-out refinance pays off your existing mortgage and replaces it with a new, larger loan at a new rate. To borrow against your home and keep your current rate, you would use a HELOC or a home equity loan, which sit behind your first mortgage.
How much are cash-out refinance closing costs?
Freddie Mac says you can expect to spend 3% to 6% of the loan principal to refinance, depending on your lender, credit score and location. On a $320,000 loan, that is $9,600 to $19,200. HELOC costs vary more: the CFPB notes that some lenders waive some or all up-front HELOC costs, while others charge appraisal, application and closing fees.
How much can I borrow with a cash-out refinance vs a HELOC?
For a cash-out refinance on a one-unit primary home, the usual cap is 80% of the home’s value for conventional (Fannie Mae) and FHA loans, and up to 100% of appraised value for VA loans. HELOC limits are set by each lender as a percentage of your home’s appraised value minus what you owe.
Does a HELOC rate change?
Usually, yes. The CFPB says HELOCs typically have variable rates made of an index (often the prime rate) plus a margin, so your payment can change even if you do not borrow more. Some HELOCs let you convert part of the balance to a fixed rate, typically at a higher rate.
How soon can I do a cash-out refinance after buying?
For a conventional loan sold to Fannie Mae, the mortgage being paid off must generally be at least 12 months old, measured note date to note date. Other loan programs have their own waiting rules, so ask each lender.
Start a HELOC request or compare refinance options →
Sources
- Freddie Mac, Primary Mortgage Market Survey: 30-year fixed 7.40%, week of October 15, 2026 (survey covers purchase loans for borrowers with good to excellent credit and 20% down).
- Federal Reserve, H.15 Selected Interest Rates: bank prime loan rate 7.00%, as of October 20, 2026.
- Freddie Mac My Home, “Understanding the costs of refinancing” (accessed October 21, 2026).
- CFPB, “What you should know about home equity lines of credit” (January 2014) and “What is a home equity line of credit (HELOC)?” (last reviewed August 28, 2026).
- CFPB, “Is there such a thing as a no-cost or no-closing loan or refinancing?” (last reviewed April 3, 2024).
- Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions (December 10, 2025), and Eligibility Matrix.
- HUD press release 19-114 (August 1, 2019): FHA cash-out limit of 80%, aligned with the GSEs’ maximum cash-out LTV.
- U.S. Department of Veterans Affairs, “Purchase and Cash-Out Refinance Loans” (accessed October 21, 2026).
Example payments are principal and interest only, calculated by LenderMatch. They exclude taxes, insurance and mortgage insurance. Last reviewed October 21, 2026.