A HELOC leaves your existing mortgage untouched and adds a separate line of credit on top; a cash-out refinance replaces the whole mortgage with a new, larger one. On this calculator's own default scenario — a $280,000 balance at 3.5%, needing $60,000 — the HELOC costs about $115,967 in total interest against $470,906 for the refinance, because the refinance resets amortization on the entire loan, not just the cash you're pulling out.
Two ways to reach the same $60,000
Both products get you cash out of your home's equity, but they touch completely different amounts of debt to do it. A HELOC adds a separate, revolving line on top of your current mortgage — the loan you already have keeps its own rate and its own remaining term, untouched. A cash-out refinance pays off your current mortgage entirely and replaces it with one new, larger loan that covers the old balance, the cash you want, and the closing costs, all reset to a fresh term at a new rate.
That structural difference is why the size of the loan being priced is wildly different between the two options, even though the amount of new cash is identical. This calculator's own default scenario makes the point cleanly:
The HELOC side of the math
The HELOC only ever prices the $60,000 draw — the existing $280,000 mortgage never enters the calculation. Using the same structure as the standalone HELOC calculator (10-year interest-only draw, 20-year amortizing repayment): the draw-period payment is 60,000 × (0.085 ÷ 12) = $425.00 a month, interest-only. The fully amortizing repayment-period payment on $60,000 at 8.5% over 240 months works out to $520.69. Total interest across both phases is $115,966.55, for a total cost of $175,966.55 against the $60,000 borrowed.
The cash-out refinance side — and why it costs so much more
A cash-out refinance rolls the existing balance, the new cash, and the closing costs into one new loan: 280,000 + 60,000 + 5,000 = $345,000, amortized fresh over 30 years at 6.875%. The new payment on that loan is $2,266.40 a month, versus $1,570.57 on the old 3.5% mortgage with 252 months left — a payment increase of $695.84 a month, before you've even accounted for the extra nine years the new 30-year term adds back onto the loan.
Because that payment increase is a cost, not a saving, the calculator's break-even logic — closing costs ÷ monthly savings — has nothing to divide by; it returns a 9999-month sentinel rather than a real number, the same way this codebase's points break-even calculator flags a scenario with no payment savings. Total interest on the new $345,000 loan over 30 years comes to $470,905.59, and total cost (interest plus the $60,000 cash plus the $5,000 closing costs) is $535,905.59.
| HELOC | Cash-out refinance | |
|---|---|---|
| Rate on the new money | 8.5% variable | 6.875% fixed, on the whole $345,000 |
| Monthly payment change | +$425.00 (draw), +$520.69 (repayment) | +$695.84 vs. the old payment |
| Total interest | $115,966.55 | $470,905.59 |
| Total cost incl. cash & fees | $175,966.55 | $535,905.59 |
Computed directly from this calculator's own formulas on its own default inputs. The gap is dominated by the refinance resetting the entire $280,000 original balance to a new 30-year term, not by the $60,000 alone.
Read this before the total-cost number scares you off a refinance
The $535,906 figure is not "the cost of borrowing $60,000" — it's the total interest on your entire future mortgage payment stream, old balance included, because a cash-out refinance doesn't let you separate the two. That is exactly the scenario this tool's own guidance flags: giving up a 3.5% rate on $280,000 to refinance the whole thing at 6.875% is expensive precisely because the rate applies to money you already owed at a much better rate, not just to the new $60,000. If your current mortgage rate were closer to today's refinance rates, the comparison would look very different — the HELOC's advantage here comes almost entirely from protecting a below-market legacy rate, not from any inherent cheapness of HELOCs as a product.
That's also why this is not an apples-to-apples "which $60,000 is cheaper" comparison — it's closer to "which is more expensive: adding a small new loan, or refinancing your whole mortgage away from its current rate." A homeowner with no legacy-rate advantage to protect, or one who wants a single fixed payment instead of a variable line, may still prefer the refinance despite the larger total-interest number, because that number is doing double duty for the whole mortgage, not just the cash-out portion.
The tax rule that applies to either product
This is the one rule IRS Publication 936 applies identically to both options: "No matter when the indebtedness was incurred, you can no longer deduct the interest from a loan secured by your home to the extent the loan proceeds weren't used to buy, build, or substantially improve your home." That sentence governs the cash-out portion of a refinance exactly as it governs a HELOC draw — pulling $60,000 out to renovate keeps that share of the new loan's interest inside the deductible, combined $750,000 acquisition-debt limit ($375,000 married filing separately); pulling the same $60,000 out to pay off a car loan or credit cards does not, on either product. Refinancing doesn't change the rule; it only changes which loan the non-qualifying interest sits inside.
It's also worth ruling out a rate anchor some borrowers reach for by mistake: Freddie Mac's Primary Mortgage Market Survey put 30-year fixed mortgages at 6.71% for the week ending September 3, 2026 — a reasonable reference point for the cash-out refinance leg, since that product is a first-lien fixed-rate mortgage. It is not a reference point for the HELOC leg, which carries its own variable, lender-quoted rate; the 6.875% used above is this calculator's own default assumption, not a published index.
Two narrower rules push the deductible-debt ceiling higher for older borrowing on either product: a mortgage taken on or before October 13, 1987 is grandfathered outside the current limits, and a written binding contract signed before December 15, 2017 — closing before January 1, 2018 and completing before April 1, 2018 — is treated as pre-December 16, 2017 debt, carrying the higher $1 million ($500,000 married filing separately) ceiling instead of $750,000. Neither exception is common on a mortgage recent enough to still have 252 months remaining, as in the default scenario above, but it's worth checking your original closing date before assuming the $750,000 limit applies.
When the new loan crosses into jumbo territory
A cash-out refinance's new loan amount is the old balance plus the cash plus closing costs — in the default scenario, $345,000. That's comfortably inside the Federal Housing Finance Agency's 2026 baseline conforming loan limit of $832,750 for a one-unit home. But because a cash-out refinance rolls your entire existing balance into the new loan rather than financing only the cash-out amount, a borrower with a larger existing mortgage can cross that limit — or the $1,249,125 high-cost-area ceiling — simply by adding a cash-out draw on top of an already-large balance. Once the new loan exceeds the applicable limit it becomes a jumbo mortgage, and jumbo pricing doesn't reliably track the Freddie Mac PMMS average used above. A HELOC, which finances only the smaller draw amount on top of the untouched first mortgage, doesn't carry this risk in the same way.
What this comparison leaves out
- ·HELOC closing costs and annual fees, which this tool treats as effectively zero — real HELOCs sometimes carry small setup or inactivity fees that a refinance's larger, itemized closing costs don't have to compete against.
- ·Rate movement. The HELOC's 8.5% and the refinance's 6.875% are both held constant for the life of the comparison; a real HELOC's variable rate will move with prime.
- ·Mortgage interest rate deductibility differences beyond the buy/build/improve test above — state tax treatment, AMT interactions, and itemizing versus the standard deduction are all borrower-specific and outside this calculator.
- ·Appraisal and underwriting risk on the refinance side, and credit-line freezes or reductions a HELOC lender can impose if your home's value drops.
Methodology
HELOC figures use a 10-year interest-only draw followed by a 20-year amortizing repayment on the cash needed, at the entered HELOC rate. Cash-out refinance figures amortize the current balance plus cash needed plus closing costs over a fresh 30-year term at the entered refinance rate, compared against the amortizing payment on the current balance and remaining term. Break-even months = closing costs ÷ monthly payment savings, or a 9999 sentinel when the new payment is higher, not lower. All figures are estimates; your lender's actual quote governs.
Sources
- IRS Publication 936, Home Mortgage Interest Deduction — accessed 2026-09-05
- Freddie Mac Primary Mortgage Market Survey — accessed 2026-09-05
- FHFA 2026 Conforming Loan Limit Values — accessed 2026-09-05