HELOC vs Home Equity Loan vs Cash-Out Refinance
Choosing a HELOC, home equity loan or cash-out refi starts with one question: is your current mortgage rate below today’s? Compare costs on a $100k example.
8 min read · Updated
If your current mortgage rate is lower than today's rates, a HELOC or a home equity loan is usually cheaper than a cash-out refinance, because a cash-out refi would reprice your whole balance at the higher rate. If your current rate is about the same as or above today's, a cash-out refinance can be the cheapest way to get one large sum at a fixed rate.
After the rate question, the choice comes down to how you need the money (all at once or over time) and whether you can handle a payment that changes. Below is a side-by-side comparison, a worked $100,000 example, and a quick decision tool.
At a glance
- First question
- Your rate vs today’s rate
- Need cash over time
- HELOC
- Draw as you go; usually variable
- One known amount
- Home equity loan
- Fixed rate, fixed payment
- Your rate ≥ market
- Cash-out refi
- One loan, one payment
- All three
- Use your home as collateral
The three options side by side
| HELOC | Home equity loan | Cash-out refinance | |
|---|---|---|---|
| What it is | A second credit line you draw on | A second loan paid out in one lump sum | A new, bigger first mortgage; you get the difference |
| Keeps your current first mortgage | |||
| Rate type | Usually variable | Usually fixed | Fixed or adjustable |
| Payment | Changes with rate and balance; jumps at repayment | Equal monthly payments | One mortgage payment |
| Borrow more later without reapplying | |||
| Upfront costs | Varies; some lenders waive some fees | Varies by lender | Generally highest: closing costs on the whole new loan |
| Lender can freeze or cut access | |||
| Home at risk if you don’t pay |
Based on the CFPB's comparison of money sources in its HELOC booklet. A blank cell means not applicable.
Worked example: the same $100,000 need
You own a home worth $800,000. You owe $300,000 at 3.50% with 22 years left (payment $1,631). You need $100,000 for a renovation. Rates below are illustrative to show the mechanics, not quotes: cash-out refi at 6.50% for 30 years, home equity loan at 7.75% for 15 years, HELOC at 8.00% variable, interest-only for the first 10 years.
| Cash-out refi | Keep loan + home equity loan | Keep loan + HELOC | |
|---|---|---|---|
| New total borrowed | $400,000 | $300,000 + $100,000 | $300,000 + $100,000 |
| Monthly payment(s) | $2,528 | $1,631 + $941 = $2,572 | $1,631 + $667 = $2,298 |
| Interest paid over 10 years | $242,497 | $146,934 | $167,284 |
| Still owed after 10 years | $339,105 | $238,256 | $291,559 |
| NYC recording tax, borrower share (≈1.80%) | $7,200 without CEMA; ≈$1,800 with | ≈$1,800 | ≈$1,800 on the full line |
What the numbers show:
- The cash-out refi costs about $95,000 more interest over 10 years than keeping the 3.50% loan and adding a home equity loan, even though its monthly payment is slightly lower. Moving $300,000 from 3.50% to 6.50% adds roughly $9,000 of interest in the first year alone.
- The HELOC has the lowest payment, but only because you pay no principal during the draw period. After 10 years you still owe the full $100,000, and the payment rises when repayment starts. If prime rises, it rises sooner.
- The home equity loan pays off fastest and has a payment that never changes.
Pick your lean in a minute
HELOC, home equity loan or cash-out refinance?
Step 1Compared with today’s mortgage rates, your current first-mortgage rate is…
Costs and rules that change the answer
NYC mortgage recording tax
All three options record a mortgage on a house or condo, so NYC recording tax applies. Your share is roughly 1.80% on loans under $500,000 and 1.925% on residential loans of $500,000 or more (the lender pays 0.25% on 1-6 unit homes). A cash-out refinance without a CEMA is taxed on the whole new loan; with a CEMA, only on the new money (Tax Law §255). A HELOC is taxed on the maximum line amount, but later draws and redraws aren't taxed again unless the maximum is raised (§253-b). Details: NYC mortgage recording tax.
Co-ops
Co-op share loans owe no recording tax, but every option needs a lender that lends on co-op shares and, typically, the co-op's sign-off through a recognition agreement. Many buildings cap total financing. Ask your managing agent first. See co-op share loans vs mortgages.
Cash-out eligibility
Fannie Mae requires at least one borrower to have been on title for six months, and a first mortgage being paid off must be at least 12 months old. There are exceptions, for example for a home you inherited or were awarded in a divorce, and for buying out a co-owner under a legal agreement.
Taxes
Interest on home equity debt is deductible only if you use the money to buy, build or substantially improve the home that secures it, and only if you itemize, per IRS Publication 936. A renovation qualifies; paying off credit cards doesn't. See mortgage interest deduction.
General information, not financial or tax advice. Rates, limits and fees vary by lender; compare Loan Estimates or HELOC disclosures from several lenders.
CFPB HELOC booklet comparison table: HELOC typically variable, borrow and repay for several years; home equity loan fixed with equal payments, need a new loan for more money; cash-out refinance variable or fixed, one payment, closing costs generally higher, may take longer to pay off, rate may be higher than the current mortgage; all put the home at risk; HELOC lender may freeze or reduce the line. Fannie Mae B2-1.3-03: 6 months on title, 12-month seasoning of the first lien being paid off. Tax Law §255 (CEMA taxes new money only) and §253-b (credit line taxed on maximum principal). NYC borrower share of recording tax about 1.80% under $500,000 per DOF 2024 MRT report and §253(1-a). IRS Pub 936: equity debt interest deductible only if used to buy, build or substantially improve the home. Worked example computed by Roofy with illustrative rates, not market quotes. Re-verified 2026-10-12 by independent fact-check: worked example recomputed (payments $1,631, $2,528, $941, $667; 10-year interest $242,497/$146,934/$167,284; balances $339,105/$238,256/$291,559; recording tax at 1.80%). CFPB comparison table re-read; unsourced low/moderate upfront-cost labels replaced with CFPB wording (cash-out closing costs generally higher). Fannie Mae B2-1.3-03 exceptions corrected (inheritance or legal award for title seasoning; co-owner buyout for the 12-month rule). Tax Law 253-b caveat on raising the maximum added.
Sources
- What you should know about home equity lines of credit (comparison table) · Consumer Financial Protection Bureau (accessed October 12, 2026)
- What is a home equity loan? · Consumer Financial Protection Bureau (accessed October 12, 2026)
- What is a home equity line of credit (HELOC)? · Consumer Financial Protection Bureau (accessed October 12, 2026)
- Selling Guide B2-1.3-03: Cash-out refinance transactions · Fannie Mae (accessed October 12, 2026)
- NY Tax Law §255: supplemental mortgages (basis for CEMA) · New York State Senate (accessed October 12, 2026)
- NY Tax Law §253-b: credit line mortgages · New York State Senate (accessed October 12, 2026)
- Publication 936: Home Mortgage Interest Deduction (2025 returns) · Internal Revenue Service (accessed October 12, 2026)
General information, not legal, tax or financial advice. Rules change; confirm with the agency or a professional before you act.