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Feb 10, 2026

Cash-Out Refinance vs. HELOC: How to Choose When You Need $150,000

Need $150K from your equity? If you have a 4.5% mortgage, a cash-out refi costs $443,360 more in interest than a HELOC. Here is the full 2026 comparison with verified numbers.

There are two primary ways to pull equity out of your home in a lump sum: a cash-out refinance and a HELOC (or home equity loan). On the surface, both accomplish the same thing. Dig into the numbers, and they look very different.

The right choice depends heavily on one variable that most comparisons underemphasize: your current mortgage rate.

The Rate Trap of a Cash-Out Refinance in 2026

A cash-out refinance replaces your entire existing mortgage with a new, larger loan. The difference between your old balance and the new loan is paid to you in cash.

The problem in 2026: most homeowners who bought or refinanced before 2022 carry mortgage rates between 3% and 5%. Today's refinance rates are approximately 6.16% for a 30-year fixed. Doing a cash-out refi means giving up your low rate on the entire existing balance -- not just on the new money you are borrowing.

Here is exactly what that costs on a realistic $1 million home scenario.

The Scenario: $1M Home, $500K Mortgage at 4.5%, Need $150K

Existing mortgage: $500,000 at 4.5%, approximately 25 years remaining
Current monthly payment: $2,779/month
Equity needed: $150,000

Option 1: Cash-Out Refinance

New loan: $650,000 (existing $500K + $150K cash) at 6.16%, 30-year fixed.

Metric

Value

New monthly payment

$3,964/mo

Payment increase vs. today

+$1,185/mo

Total interest on new 30yr loan

$777,109

Total interest remaining on existing 25yr loan

$333,749

Extra interest from giving up 4.5% rate

$443,360

That $443,360 is the hidden cost of the cash-out refinance -- the price of trading a 4.5% mortgage for a 6.16% one on $500,000 you were already financing at a low rate. You are borrowing $150,000 in new money and paying $443,360 in extra interest for the privilege of doing it through a refinance instead of through a second lien.

Option 2: HELOC at 7.23%

A HELOC leaves your existing mortgage completely untouched and adds a second lien. You keep the 4.5% rate on $500,000 and borrow the $150,000 separately.

During the draw period (interest-only at 7.23% on $150,000):

Payment

Amount

Existing mortgage (4.5%, 25yr remaining)

$2,779/mo

HELOC interest-only on $150,000

$904/mo

Combined total

$3,683/mo

The HELOC option costs $281/month less than the cash-out refi during the draw period -- and the existing mortgage stays at 4.5% for its remaining 25-year life.

Total interest cost of the $150,000 HELOC (10-year interest-only draw + 20-year repayment at 7.23%):

Draw period interest (10yr x $904/mo x 12): $108,480 Repayment period interest (20yr P+I at 7.23%, paying off $150K): $134,069 Total HELOC interest on $150,000: $242,549

Compared to the $443,360 in extra interest generated by the cash-out refinance, the HELOC saves approximately $200,811 in total financing cost -- in addition to the $281/month lower payment during the draw period.

When the Cash-Out Refinance Makes More Sense

The analysis above strongly favors the HELOC because the homeowner holds a 4.5% primary mortgage. The calculus shifts in several scenarios:

Your current rate is already near today's rates. If you locked in at 6.5% or 7% in 2022-2023, a cash-out refi at 6.16% simultaneously lowers your overall rate and accesses equity. You save money on the existing balance while getting the cash you need -- the rate penalty disappears.

You need a very large amount. HELOCs are typically capped at 80-85% CLTV. A cash-out refi can sometimes access up to 80% of appraised value in a single loan, which may be necessary for larger draws.

You want one single payment. Managing a primary mortgage and a HELOC with different servicers, rates, and due dates adds complexity. Some borrowers prefer consolidating into a single loan even at a higher rate.

You believe variable rates will rise. HELOCs are variable. If you expect the prime rate to climb materially from its current 6.75%, locking all your debt into a fixed rate through a cash-out refi protects you.

The Decision Framework

If your current mortgage rate is below 5.5%, a cash-out refinance will cost you significantly in lost rate on your existing balance. Model both options carefully -- the HELOC almost always wins on total cost.

If your current mortgage rate is 6% or higher, the rate penalty for a cash-out refi is minimal or nonexistent. Compare the all-in costs and choose based on payment structure, simplicity, and flexibility preferences.

If you want fixed payments on the new borrowing specifically, consider a home equity loan (fixed, lump sum, 7.44% average) rather than a HELOC. A home equity loan also leaves your primary mortgage intact.

If you need more than 80-85% CLTV total, a cash-out refi may be the only path available, subject to lender approval and PMI thresholds at higher LTV ratios.

Know Your Numbers Before You Decide

The scenario above is a specific case, not a universal rule. Your result depends on your current rate, remaining term, how much you need to borrow, and how long you will carry the second loan. Hauser's refinance and HELOC calculators let you model both options using your actual mortgage balance, current rate, and equity draw amount -- so you can see the total interest cost of each path side by side before approaching any lender.

Sources

Why Transparency Reduces Home Buyer Regret, Even When Deals Fall Apart

Regret rarely comes from walking away. It more often comes from committing without full clarity around cost, condition, and long-term implications.

Why Home Buyers Underestimate Post-Close Capital Needs

Post-close costs are frequently overlooked, even by prepared buyers. Planning for future capital needs upfront reduces surprises and protects long-term financial flexibility.