HELOC vs Home Equity Loan vs Cash-Out Refi (2026) + Calculator

There are three common ways to turn home equity into cash. A HELOC is a credit line with a variable rate and low interest-only payments at first. A home equity loan is a lump sum at a fixed rate and a fixed payment. A cash-out refinance replaces your whole mortgage with a bigger one. If your current mortgage rate is well below today's 7.40% average, a cash-out refinance usually costs the most, because it reprices your entire balance, not just the cash you need. The calculator below compares all three on your numbers.

Table of Contents

The Short Answer

Need money over time, or not sure how much? A HELOC. You pay interest only on what you draw, but the rate floats with the prime rate (7.00% in October 2026) plus the lender's margin.
Need a set amount for a one-time cost? A home equity loan: fixed rate, fixed payment, paid off on a set date.
Cash-out refinance only makes sense if today's rate is close to or below your current mortgage rate, or you want one payment and accept the trade-off.
All three put your home at risk if you can't pay. Don't use them for spending you can't repay.
Avoid home equity "investments" unless you understand the cost: the CFPB found the amount owed can grow about 19.5% to 22% a year in the early years.

Home Equity Calculator

Enter your home's value, what you owe and the cash you need. Use rates from real lender quotes if you have them; the defaults are examples based on the October 2026 prime rate and 30-year mortgage average.

Side by Side

	HELOC	Home equity loan	Cash-out refinance
What you get	A credit line you draw as needed	A lump sum	A new, larger first mortgage; you get the difference
Rate	Variable, tied to an index (usually prime)	Fixed	Fixed or adjustable, on the whole balance
Payments	Often interest-only during the draw period, then principal and interest	Fixed principal and interest	One new mortgage payment
Your current mortgage	Stays as is	Stays as is	Paid off and replaced
Closing costs	Varies by lender; some plans charge annual fees	Varies by lender	Full mortgage closing costs
Best for	Ongoing projects, flexible needs	One known cost	When the new rate is no higher than your current rate

Example from the calculator defaults: borrowing $50,000 on a $450,000 home with a $250,000 mortgage at 3.5% and 25 years left. A HELOC at 7.75% costs $322.92 a month interest-only for 10 years, then $410.47 for 20 years. A 15-year home equity loan at 8.25% costs $485.07 a month and $37,313 in interest. A cash-out refinance at 7.40% into a $306,000 loan (including $6,000 of costs) raises your mortgage payment from $1,251.56 to $2,118.68 and adds about $331,000 of lifetime interest compared with keeping your current loan.

How a HELOC Works

A home equity line of credit works like a credit card secured by your house. During the draw period (often 10 years) you borrow as needed and may pay only interest; then the line closes and you repay principal and interest over the repayment period. Federal rules limit how a lender can change it:

The rate can only change with a public index outside the lender's control, such as the prime rate (Regulation Z, 12 CFR 1026.40(f)(1)). When prime rises, your payment rises.
The lender can freeze or cut the line if your home's value "declines significantly" below its appraised value, if your finances change materially, or if you default (1026.40(f)(3)(vi)). Don't count on unused credit in a downturn.
It can't demand full repayment early except for fraud, failure to pay, or something that harms its security in the home (1026.40(f)(2)).
Watch the payment jump when the draw period ends and principal kicks in. In the example above it rises from $323 to $410.

More on whether a HELOC fits you: is a HELOC a good idea?

How a Home Equity Loan Works

A home equity loan (a "second mortgage") gives you a lump sum at a fixed rate, repaid in equal monthly payments over a set term. Your first mortgage stays untouched. It suits one known expense, like a roof or consolidating high-rate debt, and it protects you from rising rates. The trade-off: you pay interest on the full amount from day one.

How a Cash-Out Refinance Works

A cash-out refinance pays off your current mortgage with a new, larger one and hands you the difference. It gives you one payment. But the new rate applies to your whole balance. If your mortgage is from the low-rate years, trading a 3% to 4% loan for one at around 7.40% (the Freddie Mac average on October 8, 2026) can cost far more than the cash is worth.

Typical rules: for a conventional loan sold to Fannie Mae, the mortgage being paid off must be at least 12 months old and at least one borrower must have been on title for six months (Fannie Mae Selling Guide B2-1.3-03). Lenders also cap how much of your home's value you can borrow; ask for the limit and the full closing costs on the Loan Estimate.

Which One Should You Choose?

Your mortgage rate is low: keep it. Use a HELOC or home equity loan for the extra cash.
You need a fixed amount and want certainty: home equity loan.
Costs will come in stages, or you want a backup line: HELOC, but plan for higher rates and a frozen line.
Your mortgage rate is at or above today's rates, or you want to change the loan term: a cash-out refinance can make sense.
To pay off credit cards: it can cut the rate, but it turns unsecured debt into debt secured by your home. Fix the spending first; see how to pay off credit card debt.
Age 62 or older and want income without monthly payments: look at a reverse mortgage, with care.

Home Equity Investments: Read This First

Home equity "investments" or "contracts" pay you cash now in exchange for a share of your home's future value. There is no monthly payment, which makes them look cheap. The Consumer Financial Protection Bureau's January 2025 market review found otherwise:

Each company uses its own formula, and the payoff depends on what your home is worth when the contract ends, so the cost is hard to predict.
Under many contracts the amount owed grows about 19.5% to 22% a year in the early years, and processing fees are often 3% to 5% of the payment.
Repayment usually comes due in one lump sum after 10 to 30 years, or when you sell, and homeowners who can't pay "could be forced to sell their homes."

Compare any offer with a HELOC or home equity loan quote before signing.

Risks, Taxes and Your Rights

Your home is the collateral. Missed payments can lead to foreclosure.
Three-day right to cancel. For a HELOC or home equity loan on your main home, you can cancel until midnight of the third business day after signing (or after you get the required notice and disclosures, if later) (Regulation Z 1026.15 and 1026.23). A refinance with your current lender carries this right only for the new money.
Interest is deductible only if you use the money on the home. IRS Publication 936: you can't deduct interest on a home-secured loan "to the extent the loan proceeds weren't used to buy, build, or substantially improve your home", and only if you itemize.
Less equity means less cushion if prices fall or you need to sell quickly.

Sources & Methodology

12 CFR 1026.40 (home equity plans), 1026.15 and 1026.23 (right of rescission).
Federal Reserve H.15: bank prime loan rate 7.00% (October 8, 2026).
Freddie Mac Primary Mortgage Market Survey: 30-year average 7.40% (October 8, 2026).
Fannie Mae Selling Guide B2-1.3-03: cash-out refinance requirements.
IRS Publication 936: home mortgage interest deduction.
CFPB Issue Spotlight: Home Equity Contracts (January 15, 2025).

Method notes. Payments use the standard loan formula with monthly compounding and constant rates. The HELOC example assumes the full amount is drawn at once, a 10-year interest-only draw period and a 20-year repayment period; real plans vary. Cash-out interest compares total interest on the new 30-year loan with the interest left on your current loan. HELOC and home equity loan rates are examples, not market averages, because no official survey of them exists; get quotes.

This article is educational and is not financial advice. Rates and lender terms change; compare Loan Estimates from several lenders. Figures were checked on 2026-10-13.

FAQ

Is a HELOC or a home equity loan better?
A home equity loan is better for one fixed amount and predictable payments; a HELOC is better for costs that come over time. A HELOC's rate can rise, and the lender can freeze the line if your home's value drops significantly.

How much equity can I borrow?
Lenders cap the combined loan-to-value of all loans on the home. At an 85% limit, a $450,000 home with a $250,000 mortgage allows up to $132,500. Ask each lender for its limit.

Is a cash-out refinance better than a HELOC?
Only if the new rate is close to or below your current rate, or you need to restructure your mortgage anyway. Otherwise you pay a higher rate on your whole balance.

Is HELOC interest tax deductible?
Only if you itemize and use the money to buy, build or substantially improve the home that secures it (IRS Publication 936).

Can I cancel a HELOC after signing?
Yes, for a HELOC or home equity loan on your main home, until midnight of the third business day after signing or after you receive the required notices.

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"HELOC vs Home Equity Loan vs Cash-Out Refinance: Which Costs Less?" Wealthy Pot, 2026. https://wealthypot.com/heloc-vs-home-equity-loan/