Refi vs HELOC Calculator

A cash-out refinance replaces your entire existing mortgage with a new, larger loan and gives you the difference in cash. A HELOC (Home Equity Line of Credit) is a second lien that sits behind your existing mortgage, allowing you to borrow against your equity without touching your first mortgage. The key distinction is that a cash-out refi resets your rate on the full balance, while a HELOC lets you keep your existing rate on the first mortgage. If your current rate is low, a HELOC preserves that advantage. However, HELOCs typically carry variable rates and shorter repayment terms, which introduces interest rate risk over time.

A HELOC is generally the better choice when your current mortgage rate is significantly below today's market rates and you need a relatively small amount of cash compared to your total loan balance. For example, if you locked in a 3% rate and current rates are 6.5%, refinancing the entire balance at a higher rate would increase your total interest cost dramatically. A HELOC lets you borrow only what you need at the higher rate while keeping the low rate on your primary mortgage. HELOCs also tend to have lower closing costs and more flexible draw options. The trade-off is that HELOC rates are usually variable and the repayment terms are shorter.

A blended rate is the weighted average interest rate across two or more loans combined. When you keep your first mortgage and add a HELOC or home equity loan, the blended rate tells you your effective overall borrowing cost. It is calculated by multiplying each loan balance by its rate, adding those products together, and dividing by the total combined balance. For instance, a $350,000 first mortgage at 3.25% and an $80,000 HELOC at 8.5% produces a blended rate of approximately 4.23%. Comparing this blended rate against a cash-out refinance rate helps you determine which option truly costs less over your planned time horizon.