Compare a cash-out refinance to a keep-mortgage-plus-HELOC strategy on lifetime cost.
Rate-environment caveat: when your existing mortgage rate is well below the current refi quote, refinancing forces every dollar of remaining principal onto the new (higher) rate. In that regime the keep-mortgage-plus-HELOC path is usually cheaper even when the HELOC rate looks scary, because only the cash you actually borrow is exposed to it. Reverse the picture in a falling-rate environment and a cash-out refi becomes the better option.
When a homeowner needs to pull a meaningful amount of cash out of the equity that has built up in a property — to remodel a kitchen, finance a college tuition, consolidate higher-rate debt, or fund a down payment on a second home — the market offers two structurally different ways to do it, and they almost never cost the same thing. The first is a cash-out refinance: you replace your existing first mortgage with a new, larger first mortgage, and the lender hands you the difference at closing. The second is a home equity line of credit, or HELOC: you keep the first mortgage exactly as it is and add a second-lien revolving line that you draw against. Picking between them is one of the most consequential rate-environment decisions a homeowner ever makes, because the choice quietly determines what rate every single dollar of remaining principal pays for the next ten to thirty years. This calculator runs both options on the same equity need, the same horizon, and the same set of fees — so the answer to "will refinancing actually save me money or just feel like it does?" is a number, not a sales pitch.
Both paths reduce to a sequence of standard amortization formulas. The fixed-rate amortizing payment is M = P × r × (1 + r)ⁿ / ((1 + r)ⁿ − 1), where P is the principal, r is the monthly rate (annual divided by 12), and n is the total number of monthly payments. Option A — the cash-out refinance — sets new principal = current balance + cash extracted + closing costs (rolled into the loan as a percentage of the new loan), then computes the new monthly payment over the new term. The lifetime cost of Option A equals new payment × new term in months. Option B — keep the mortgage and add a HELOC — leaves the existing payment untouched (computed from the existing balance, existing rate, and months remaining) and adds a second amortizing payment computed on the cash extracted at the HELOC rate over the HELOC repayment term. The lifetime cost of Option B equals the existing payment × months remaining + the HELOC payment × HELOC term. The headline number is the cost difference = total refi − total keep; a negative number means cash-out refi is cheaper.
The inputs split into four short blocks. Existing mortgage is your current balance, your current rate, and the months remaining. Equity to extract is the cash you actually need — not the maximum you could borrow, but the dollar amount that will leave your bank account at closing. Refinance offer is the new rate the lender is quoting, the new term in years (15 / 20 / 25 / 30), and the closing costs expressed as a percentage of the new loan amount (typically 2 – 4 %). HELOC offer is the HELOC rate (HELOCs are usually variable; enter the current rate and run the calculator again at +1 % and +2 % to stress-test it) and the repayment term in years. The Results panel returns the recommended path, the monthly payment under each option, the monthly delta, the lifetime cost of each, the lifetime gap, and a side-by-side bar chart that shows the principal and interest components of each total. A short verdict line summarizes the trade-off in one sentence.
Consider the most common modern scenario: you owe $240,000 at 4.0 % on an existing 30-year mortgage with 20 years left, and you need $80,000 in cash. A lender offers a 30-year cash-out refi at 6.5 % with 3 % closing costs; a HELOC is available at 8.5 % repaid over 15 years. Option A — cash-out refi — turns the loan into $329,600 at 6.5 % for 360 months, payment ≈ $2,083, lifetime cost ≈ $749,830. Option B — keep + HELOC — keeps the existing $1,454 payment for 240 more months ($349,030 total) and adds an $80,000 / 8.5 % / 15-yr HELOC at $788 / month for $141,790 total, lifetime ≈ $490,820. Option B is roughly $259,000 cheaper — not because the HELOC rate is good (it isn't) but because the cash-out refi forces every dollar of the remaining $240,000 onto the new 6.5 % rate, while Option B exposes only the $80,000 of new money to a high rate. This is the rate trap: a 2.5-point gap between your existing rate and the current refi quote, multiplied across hundreds of thousands of remaining principal, can dwarf the visible HELOC premium.
Five errors trip up homeowners running this comparison. First, refinancing locks all the equity at the higher rate. If your existing first mortgage is at 3 – 4 % and current rates are 6 – 7 %, a cash-out refi quietly converts every remaining dollar of principal into 6 – 7 % money. The cash-out spread is what matters; the headline rate doesn't. Second, HELOC variable-rate risk. Most HELOCs are tied to the prime rate plus a margin and reset monthly or quarterly. The calculator runs at one fixed rate, so re-run it with the rate +1 % and +2 % before signing — if Option B still wins by a margin, the variable-rate exposure is acceptable; if the margin is razor-thin, lock the rate or pick the refi. Third, second-lien position in foreclosure. The HELOC sits behind the first mortgage in the capital stack — in a forced sale the first lien gets paid first, the HELOC second, and a defaulted HELOC can foreclose just as a first mortgage can. Lenders price the variable rate to compensate for that subordination. Fourth, prepayment penalties. Some HELOCs charge an early-termination fee if you close the line within the first three years, and some first mortgages still carry prepayment penalties that bite if you refinance them. Check both before signing. Fifth, US TCJA limits on home-equity interest deductibility. Since the 2017 Tax Cuts and Jobs Act, home-equity interest is deductible on US federal returns only when the borrowed funds are used to buy, build, or substantially improve the home that secures the loan — interest on a HELOC used for tuition or debt consolidation is not deductible, and neither is the cash-out portion of a refinance used for the same purpose. The pre-tax comparison the calculator runs is the right one to start with; the after-tax comparison may shift the verdict if your draw qualifies for deductibility under either path and not the other.
The two paths exist almost everywhere, but the regional plumbing varies. In the United States, both cash-out refinances and HELOCs are widely available and lightly regulated; the standard combined loan-to-value cap is 80 – 85 % for cash-out refis and 80 – 90 % for HELOCs depending on lender appetite, and closing costs run 2 – 5 % of the new loan for the refi vs near zero for the HELOC. In Canada, the dominant product is the readvanceable mortgage — a single product that combines a declining first-mortgage portion with a re-borrowable HELOC portion, typically capped at 65 – 80 % of home value, with the HELOC portion automatically re-arming as principal is repaid; the same calculator framework applies but the closing cost on the HELOC side drops to near zero because the line was pre-approved at origination. In France, cash-out refinancing (rachat de crédit avec trésorerie) was significantly tightened by the 2020 HCSF lending rules, which capped total household debt service at 35 % of gross income and made cash-out approvals scarce; equity release in France is now mostly done via a separate consumer loan rather than a true cash-out refi. In the United Kingdom, the equivalent of a HELOC is a second-charge mortgage (often packaged as a fixed-term loan rather than a revolving line), available alongside the more common practice of remortgaging at the end of the fixed-rate period. Across all four jurisdictions the underlying decision is the same: when your existing mortgage rate is well below the current refi quote, the keep-mortgage-plus-HELOC path almost always wins; when the existing rate is above the current quote, a cash-out refi usually does. Run both numbers before signing.