Refinancing to pull cash out replaces your whole mortgage. A HELOC leaves it alone. In the example below the HELOC route costs about $89,317 less in interest and closing costs over 10 years, mostly because the mortgage rate you already have is low. Swap in your own numbers to see which way yours goes.
The numbers in the boxes are examples to show how it works. They aren’t a quote, a current market rate or any lender’s terms, so swap in your own.
What your result means
Look at two rows. Interest plus closing costs is the price of each route. The amount still owed shows what the price bought you. Try making the new mortgage rate equal to your current one. In that run the refinance payment is $398.45 lower a month, yet it costs about $18,236 more over 10 years and leaves $60,550 more owed, because it restarts the clock.
What it leaves out
A HELOC rate generally moves, and this holds it still. It also treats the HELOC as paid down evenly, with no interest only draw period, and ignores taxes, insurance and any change in the interest you can deduct. If you borrow the HELOC in pieces, you will come in lower.
What to check with a lender
For the refinance, ask for the loan estimate and compare the closing costs line by line. For the HELOC, ask what the rate is tied to, how high it can go and what it costs to open and keep. Then rerun this with real quotes.
How this is calculated
Option 1 is two loans. Your mortgage keeps its own rate and years left, and the HELOC is repaid in level payments over the years you enter. Option 2 is one new loan for the mortgage balance plus the cash, at the new rate and term. Every loan uses the same payment formula: the balance times the monthly rate i, divided by 1 minus (1 plus i) raised to the power of minus n, or the balance divided by n at a 0% rate.
Interest paid is counted payment by payment for the years you compare. Interest plus closing costs is what the borrowing costs you. The amount still owed at the end shows what is left to pay. A lower payment with a bigger balance left can still be the more expensive choice. Payments are rounded to the cent and everything else to the nearest dollar. Rates run from 0% to 30%, terms from 1 to 40 years, dollar amounts up to $10,000,000. Anything outside that is moved to the nearest allowed number and you’ll see a note saying so.
HELOC vs cash out refinance questions
Usually when your current mortgage rate is no better than what you would get on a new one, since you would be replacing it anyway. Set the new rate near your current rate in the boxes and see how the totals change.
A lower payment can come from stretching the loan, which costs more in interest. Interest plus closing costs is the price of the borrowing, and the amount still owed shows how much of the loan is left.
In this calculator, yes, because you enter a new term. A fresh 30 year term lowers the payment but usually raises the interest, so check the amount still owed at the end of your horizon.
Want to see more ways to get at your equity? This guide compares them. For one lender’s HELOC terms, read the Figure HELOC review. Check the payment on its own with the HELOC payment calculator, and see our best home equity agreement companies and the rest of our home equity guides.