1. Your situation
2. Option A: keep your mortgage and add a HELOC
3. Option B: cash-out refinance
4. Assumptions
Result
Questions people ask
Should I get a HELOC or a cash-out refinance?
It mostly comes down to the rate on the mortgage you already have. A cash-out refinance replaces your whole balance with a new loan at today's rate, so if your current rate is much lower, you pay the higher rate on money you were already borrowing cheaply. A HELOC leaves that mortgage alone and charges a (usually variable) rate on only the new cash. This tool prices both for the years you expect to keep them and shows which costs less.
Why can a cash-out refinance cost more even when its rate is lower than the HELOC rate?
Because the refinance rate applies to the old balance too. Taking $60,000 out of a $220,000 mortgage at 3% by refinancing everything at 6.75% reprices $220,000, about $8,250 more interest a year, to get $60,000. The tool shows that repricing cost on its own line, next to the closing costs of each route.
What if my HELOC rate goes up?
HELOC rates usually float with a benchmark, so one average rate is an assumption. The table at the bottom reruns the comparison with the HELOC rate one, two and three points higher, and the result lists the average HELOC rate at which the two routes cost the same, so you can judge how much room you have.
How is the cost of each route measured?
Each month's payment is carried forward at the return you would otherwise earn on your money, closing costs are paid on day one and compounded the same way, and whatever you still owe at the end year is added. Lower is better. Both routes put the same cash in your hand, so only the cost differs.
What does the interest-only period do?
Most HELOCs let you pay only interest during a draw period, often ten years, then require principal and interest over the rest of the term. The tool models that: you see the low early payment and the higher payment after the draw period ends, and the balance stays put until then.
Is the interest tax deductible?
It depends on what you spend the money on and how much total home debt you have, and many people take the standard deduction. The tool takes one marginal tax rate on interest for both routes; leave it at 0 if you do not itemize. Confirm with a tax professional.
Is this financial advice?
No. It is arithmetic on numbers you type, with simplified assumptions: a fixed rate on the refinance, one average rate on the HELOC, closing costs paid in cash, no prepayment, a constant return on your money. Check every figure against your lenders' Loan Estimates and consider a licensed adviser.
Not decided
Whether you qualify for either loan, your credit and the lenders' real fees, a HELOC rate that floats up and down rather than one average, HELOC rate caps and lender freezes or reductions of your credit line, a fixed-rate HELOC or home equity loan as a third option, whether the interest is deductible for your use of the money, extra payments you may make, mortgage insurance, and what the cash is for. Fixed rate on the refinance, one average rate on the HELOC, closing costs paid in cash, constant return on your money.
Related tools: the mortgage points break-even calculator for choosing a rate and the mortgage escrow analysis checker for the payment you already make.