What are current HELOC rates vs cash-out refinance rates?

As of February 2026: HELOC rates average 8.0-9.5% (variable, tied to prime). Cash-out refinance rates average 6.5-7.0% (fixed). HELOCs have higher rates but you only pay interest on what you use. Cash-out refinance has lower rates but you pay interest on the full amount.

HELOC vs Cash-Out Refinance 2026: Which Is Better?

Q: Is HELOC or cash-out refinance better?

It depends on your situation. Choose HELOC if: you need flexible access to funds, you have a low existing mortgage rate you don't want to lose, you only need money short-term. Choose cash-out refinance if: you want a fixed rate, you can get a lower rate than your current mortgage, you need a large lump sum, you want one simple payment.

Q: Is HELOC interest tax deductible?

HELOC interest is tax deductible ONLY if funds are used to 'buy, build, or substantially improve' your home (per TCJA 2017). Using HELOC for debt consolidation, college, or other purposes = NOT deductible. Cash-out refinance has the same rules. Consult a tax professional.

⚡ Quick Decision Guide

Choose HELOC if:

✅ You have a low rate you don't want to lose
✅ You need flexible, ongoing access to funds
✅ You're not sure exactly how much you need
✅ You plan to pay it back quickly

Choose Cash-Out Refi if:

✅ You can get a lower rate than your current mortgage
✅ You want a fixed rate (no surprises)
✅ You need a large lump sum
✅ You want one simple monthly payment

Side-by-Side Comparison

Feature	HELOC	Cash-Out Refinance
How It Works	Credit line you draw from	New mortgage, cash at closing
Current Rates (Feb 2026)	8.0-9.5% variable	6.5-7.0% fixed
Rate Type	⚠️ Variable (can increase)	✅ Fixed (locked in)
Closing Costs	$0-$500 (often waived)	2-5% of loan ($8K-$20K)
Access to Funds	Draw as needed over 10 years	Lump sum at closing
Affects Your Mortgage?	✅ No, keeps existing mortgage	❌ Yes, replaces your mortgage
Monthly Payment	Interest-only option available	Full P&I payment
Best For	Ongoing projects, flexibility	Large one-time expense

💰 Real Example: Need $50,000

Current mortgage: $300,000 at 4.5% | Home value: $500,000

HELOC Option

Credit line: $50,000
Rate: 8.5% variable
Closing costs: $0
Monthly payment: $354 (interest-only)
Keep existing mortgage: Yes (4.5%)
Total monthly: $1,520 + $354 = $1,874

Cash-Out Refi Option

New loan: $350,000
Rate: 6.5% fixed
Closing costs: $10,500 (3%)
Monthly payment: $2,212
Replaces existing mortgage: Yes
Total monthly: $2,212

⚠️ Key Insight:

In this example, HELOC saves $338/month BUT has rate risk. Cash-out refi costs more monthly but locks in a fixed rate. If you have a low existing rate (under 5%), HELOC usually wins.

Understanding HELOC

A Home Equity Line of Credit (HELOC) is like a credit card secured by your home. You get approved for a maximum amount, then draw what you need when you need it.

Draw period: 10 years (borrow and repay)
Repayment period: 20 years (pay back principal + interest)
Interest-only option: Often available during draw period
Variable rate: Tied to prime rate (currently 8.5%)

Understanding Cash-Out Refinance

A cash-out refinance replaces your existing mortgage with a new, larger one. You get the difference in cash at closing.

New mortgage: Replaces your existing loan
Fixed rate: Locked for 30 years (or 15/20)
Lump sum: All cash at closing
Closing costs: 2-5% of new loan amount

When HELOC Wins ✅

You have a great existing rate (under 5%) — Don't lose it!
You need ongoing access — Home renovation over time
You're not sure how much you need — Only pay interest on what you use
You'll pay it back quickly — Less time for rates to rise
You want low/no closing costs — Many HELOCs have none

When Cash-Out Refinance Wins ✅

Your current rate is high (6%+) — Might as well refinance anyway
You want rate certainty — Fixed rate, no surprises
You need a large lump sum — Debt consolidation, major purchase
You want one payment — Simpler than mortgage + HELOC
You're staying long-term — Time to recoup closing costs

Tax Deductibility (Important!)

⚠️ TCJA 2017 Changed the Rules

Interest is ONLY tax-deductible if funds are used to "buy, build, or substantially improve" your home.

✅ Deductible:

Kitchen renovation
Adding a room
New roof
Major repairs

❌ NOT Deductible:

Debt consolidation
College tuition
Vacation
Car purchase

Frequently Asked Questions

Is HELOC or cash-out refinance better?

HELOC is better if you have a low existing rate you want to keep. Cash-out refinance is better if you can get a lower rate than your current mortgage or want fixed-rate certainty.

What are current HELOC vs cash-out refinance rates?

As of February 2026: HELOC rates average 8.0-9.5% (variable). Cash-out refinance rates average 6.5-7.0% (fixed).

Is HELOC interest tax deductible?

Only if funds are used to "buy, build, or substantially improve" your home. Using HELOC for debt consolidation or other purposes is NOT deductible.