Cash-Out Refinance vs HELOC 2026: Which Saves $18K Over 10 Years?
Cash-out refinance vs HELOC 2026: Cash-out refinance = replace existing mortgage with new, larger loan (fixed rate 6.45%, $200K max, closing costs $3K-$6K, 30-45 days). HELOC = 2nd loan/line of credit on top of mortgage (variable rate 9.25%, $100K typical, $0-$500 fees, 2-4 weeks). Cash-out better if rates dropped 0.75%+. HELOC better for flexibility (borrow/repay as needed). Compare HELOC rates. Related: Home equity rates 2026.
🎯 The Quick Answer (January 2026):
Cash-Out Refinance: Replace mortgage. Fixed 6.45%. $3K-$6K closing costs. 30-45 days. Better if rates dropped.
HELOC: 2nd loan. Variable 9.25%. $0-$500 fees. 2-4 weeks. Better for flexibility.
💡 Choose cash-out if: Rates dropped 0.75%+, need $100K+, want fixed rate. Choose HELOC if: Good mortgage rate, need <$50K, want flexibility.
Cash-Out Refinance vs HELOC: Side-by-Side
| Feature | Cash-Out Refinance | HELOC |
|---|---|---|
| How It Works | Replace existing mortgage with larger loan | 2nd loan/line of credit on top of mortgage |
| Interest Rate (Jan 2026) | 6.45% fixed | 9.25% variable |
| Closing Costs | $3,000-$6,000 | $0-$500 |
| Typical Amount | $50K-$200K+ | $10K-$100K |
| Timeline | 30-45 days | 2-4 weeks |
| Flexibility | Lump sum only | Borrow/repay as needed |
| Tax Deductible | YES (if used for home) | YES (if used for home) |
| Best For | Rates dropped, large amount, fixed rate | Good mortgage rate, flexibility, small amount |
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5 Real Scenarios: Which Is Better?
Scenario 1: Rates Dropped (7.5% → 6.45%)
✅ CASH-OUTSituation: $300K mortgage at 7.5%, need $50K cash
Cash-Out: New $350K loan at 6.45% = $2,210/month (save $280/month vs old mortgage!)
HELOC: Keep $300K at 7.5% ($2,098/month) + $50K HELOC at 9.25% ($385/month) = $2,483/month
Winner: Cash-out saves $273/month = $32,760 over 10 years!
Scenario 2: Good Mortgage Rate (5.5%)
✅ HELOCSituation: $250K mortgage at 5.5%, need $30K cash
Cash-Out: New $280K loan at 6.45% = $1,765/month (lose great 5.5% rate!)
HELOC: Keep $250K at 5.5% ($1,419/month) + $30K HELOC at 9.25% ($231/month) = $1,650/month
Winner: HELOC saves $115/month = $13,800 over 10 years!
Scenario 3: Small Amount Needed ($15K)
✅ HELOCSituation: $200K mortgage at 6.75%, need $15K cash
Cash-Out: $5,000 closing costs + higher balance = NOT worth it for $15K
HELOC: $0-$500 fees + only pay interest on $15K used = $116/month
Winner: HELOC saves $5,000 in closing costs!
Scenario 4: Large Amount ($150K)
✅ CASH-OUTSituation: $400K mortgage at 7.0%, need $150K cash
Cash-Out: New $550K loan at 6.45% = $3,470/month (fixed rate, lower than old!)
HELOC: Keep $400K at 7.0% + $150K HELOC at 9.25% = $2,661 + $1,156 = $3,817/month
Winner: Cash-out saves $347/month = $41,640 over 10 years!
Scenario 5: Ongoing Project (Renovations)
✅ HELOCSituation: $300K mortgage at 6.5%, need $50K over 12 months for renovations
Cash-Out: Get full $50K upfront, pay interest on entire amount immediately
HELOC: Draw $50K as needed, only pay interest on amount used (save $2,000+ in first year)
Winner: HELOC saves $2,000+ with flexible draws!
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Frequently Asked Questions
What are HELOC rates in 2026?
HELOC rates January 2026: 9.00%-9.50% variable (Prime + 0.50%-1.00%). Rates change monthly with Fed policy. Example: Prime 8.50% + 0.75% margin = 9.25% HELOC rate. Fixed-rate HELOCs: 9.75%-10.25% (higher but stable). Compare current HELOC rates.
Can I have both a cash-out refinance and HELOC?
NO. Cash-out refinance replaces your existing mortgage, so you can't have both simultaneously. BUT: You can do cash-out refinance FIRST, then get a HELOC later (after 6-12 months). Or keep your mortgage and get HELOC only.
Which has lower closing costs?
HELOC has much lower costs: $0-$500 (appraisal, title search). Cash-out refinance: $3,000-$6,000 (appraisal, title insurance, origination, underwriting). Breakeven: If cash-out saves $100/month, takes 30-60 months to recover closing costs.