Side-by-Side Comparison
| Feature | HELOC | Cash-Out Refinance |
|---|---|---|
| Your Mortgage | Stays the same ✅ | Replaced entirely |
| Interest Rate | Variable (prime + margin) | Fixed ✅ |
| Closing Costs | Low ($0–$500) ✅ | High (2–5% of loan) |
| Funds Access | Draw as needed ✅ | Lump sum only |
| Monthly Payment | Lower (interest-only) ✅ | Higher (full P+I) |
| Approval Time | 2–4 weeks ✅ | 4–8 weeks |
| Tax Deductible | Yes (home improvements) | Yes (home improvements) |
| Best For | Ongoing/phased expenses | Large one-time expense |
Real Cost Example: $80,000 in Equity
HELOC at 8.5%
- Closing costs: $0–$300
- Draw period payment: $567/month (interest-only)
- Repayment payment: $790/month
- Existing mortgage: Unchanged
- Total upfront cost: ~$300
Cash-Out Refi at 7%
- Closing costs: $4,000–$8,000
- New mortgage payment: Higher than before
- Rate on full balance: 7% (vs your old rate)
- Loan term reset: Back to 30 years
- Total upfront cost: ~$6,000
Key insight: If your current mortgage rate is below 5%, a cash-out refinance forces you to refinance your entire balance at today's higher rates — costing you thousands more per year.
When to Choose Each Option
Choose HELOC if:
- ✅ Your current mortgage rate is below 6%
- ✅ You need funds in phases (renovations)
- ✅ You want to minimize upfront costs
- ✅ You may not need the full amount
- ✅ You want flexibility to repay and redraw
Choose Cash-Out Refi if:
- ✅ Current rates are lower than your mortgage
- ✅ You need a large lump sum at once
- ✅ You want one single fixed payment
- ✅ You plan to stay in the home long-term
- ✅ You want to consolidate all debt
Frequently Asked Questions
Is a HELOC better than cash-out refinance in 2026?
For most homeowners in 2026, yes. With mortgage rates above 6.5%, a HELOC lets you keep your existing low rate while accessing equity. A cash-out refi would reset your entire mortgage to today's higher rates.
What credit score do I need?
Both typically require a minimum 620 credit score, but 700+ gets you the best rates. HELOC lenders may be slightly more flexible since the risk is lower for them.
How much equity do I need?
Most lenders require at least 15–20% equity remaining after the loan. So with a $400,000 home, you'd need at least $60,000–$80,000 in equity to qualify.
Can I get both a HELOC and cash-out refinance?
Not simultaneously on the same property. You'd need to choose one. However, you could do a cash-out refi first, then open a HELOC later if you need more funds.