Cash-Out Refinance vs. Home Equity Loan vs. HELOC
Which Fits Your Situation?
Last verified: April 2026
Three options, one sentence each
Replace your existing mortgage with a new, larger one, and receive the difference in cash. Your original mortgage disappears; you now have one larger mortgage at today's rate.
Keep your existing mortgage and add a second loan on top of it. You receive a lump sum and make fixed payments on the second loan separately from your first mortgage.
Keep your existing mortgage and open a revolving credit line alongside it. Draw money as needed, pay interest only on what you use, and repay and reborrow during the draw period.
Side-by-side comparison
| Feature | Cash-Out Refi | Home Equity Loan | HELOC |
|---|---|---|---|
| What happens to your mortgage | Replaced entirely | Kept; new loan added | Kept; credit line added |
| Rate (April 2026) | ~6.7% APR (30yr) | 8.3% fixed | 8.6% variable |
| Rate applies to | Your entire mortgage balance | New loan only | Amount drawn only |
| Closing costs | 2-5% of new mortgage | 2-5% of loan | 2-5% or waived |
| When it wins | Your current rate is high; need large sum | Known lump-sum need | Phased spending, flexibility |
| Biggest risk | Raising rate on whole balance | Home as collateral | Variable rate; payment shock |
| Payments | One mortgage payment | Two payments (1st + HEL) | Two payments (1st + HELOC) |
The April 2026 context: why cash-out refi is usually the wrong choice
Millions of homeowners locked in mortgage rates of 2.5 to 4.0% between 2020 and 2022. If you are one of them, a cash-out refinance at today's 30-year rate of about 6.7% would mean replacing your entire mortgage balance at a much higher rate. That is an enormous cost.
Example: You have a $300,000 mortgage at 3.0%. Your monthly payment is $1,265. If you cash-out refi to $375,000 at 6.7% to pull out $75,000, your new monthly payment is $2,436. You have added $1,171/month to your housing costs, all to borrow $75,000 at an effective rate far above 8.3%.
Worked example: $500k home, $250k mortgage at 3.25%, need $75k cash
| Approach | Total loan(s) | Rate(s) | Monthly cost | Extra cost vs today |
|---|---|---|---|---|
| Current (no new borrowing) | $250k at 3.25% | 3.25% | $1,088/mo | - |
| Cash-out refi to $325k | $325k at 6.7% | 6.7% | $2,101/mo | +$1,013/mo |
| Keep mortgage + HEL ($75k) | $250k @ 3.25% + $75k @ 8.3% | Dual | $1,088 + $724 = $1,812/mo | +$724/mo |
| Keep mortgage + HELOC ($75k) | $250k @ 3.25% + $75k @ 8.6% | Dual | $1,088 + $538 int-only = $1,626/mo | +$538/mo |
Monthly payment assumes 30-year mortgage for cash-out refi, 15-year HEL, interest-only HELOC draw. Numbers illustrative.
When cash-out refi actually wins
- Your current mortgage rate is 6% or higher. In this case, refinancing at 6.7% is not much worse, and you get the simplicity of one payment.
- You need more than $100,000 in cash. Very large sums are harder to access via home equity loan, and some lenders cap HELOC limits at $500,000.
- You want a single monthly payment and will be confused or stressed by managing two separate loans.
- Your existing mortgage has a prepayment penalty that will expire soon and a refi is planned anyway.