HELOC vs Cash Out Refinance: Which One Costs You Less?

When homeowners tell me they want to tap their equity, the first thing I ask is what the money is for and what their current mortgage rate looks like. The answer decides everything. Here are your two main paths.

A cash out refinance replaces your current mortgage with a brand new one for a larger amount. You get the difference as cash at closing. One loan, one payment, usually a fixed rate. The downside: you give up your current rate. If you locked in a low rate years ago, refinancing the entire balance at today’s rate can cost you far more than the cash you take out.

A HELOC (home equity line of credit) is a second lien that sits behind your first mortgage. Your current rate stays untouched. You get a credit line you can draw from as needed during the draw period, and you only pay interest on what you actually use. The tradeoff: the rate is usually variable, and it is a second monthly payment to manage.

So which one costs less? It depends on your situation:

• Your first mortgage rate is low: a HELOC almost always wins. Do not refinance a great rate just to access equity.
• You need one large lump sum: a cash out refinance can make sense, especially if your current rate is already near market rates.
• You want flexibility over time: a HELOC works like a safety net for renovations done in phases or ongoing expenses.
• Closing costs matter: HELOCs typically cost less to set up than a full refinance.

The wrong choice here can cost you tens of thousands over the life of the loan, so run both scenarios before you decide. I do this comparison with homeowners every week.

Curious what your equity can do? Check out my HELOC page or start your application and I will run your numbers both ways.