HELOC vs. Cash-Out Refinance Modeler
Analyze the trade-offs between a HELOC and a Cash-Out Refinance. Visualize the HELOC payment shock vs. the long-term interest cost of refinancing.
Comparison at Year 10
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Scenario A: Cash-Out Refinance
Scenario B: Keep Mortgage + HELOC
(I/O Phase)
Total Interest Paid by Year 10
This chart shows the cumulative interest cost for both options up to the selected year. It updates as you move the slider.
Monthly Payment Over 30 Years (The "Payment Shock")
Visualize the "Payment Shock". The HELOC payment is low during the 10-year interest-only period, then increases significantly when principal repayment begins. The original mortgage payment may also end during this period.
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HELOC vs. Cash-Out Refinance: The Trade-Offs
The Core Decision: Rate vs. Flexibility
When you need to tap into your home equity, the two primary options are a Cash-Out Refinance and a Home Equity Line of Credit (HELOC). The best choice often depends on your current mortgage rate and how long you plan to stay in the home.
Scenario A: Cash-Out Refinance
A Cash-Out Refinance replaces your existing mortgage with a new, larger loan. You receive the difference in cash.
- Pros: Fixed interest rate, stable monthly payment for the full term (15 or 30 years), simple (one loan).
- Cons: You lose your existing mortgage rate. If your current rate is low (e.g., 3.5%), replacing it with a higher rate (e.g., 6.5%) on the *entire* balance can be very costly over the long term. Higher closing costs than a HELOC.
Scenario B: HELOC (Home Equity Line of Credit)
A HELOC is a second mortgage that acts like a credit card, secured by your home. You keep your primary mortgage intact.
- Pros: You keep your low primary mortgage rate. Interest is only paid on the amount you borrow. Low closing costs.
- Cons: Variable interest rates (can increase). Requires financial discipline. Features a significant "Payment Shock."
Understanding the "Payment Shock"
HELOCs typically have two phases:
- The Draw Period (e.g., 10 years): You can withdraw funds, and payments are usually interest-only (very low).
- The Repayment Period (e.g., 20 years): You can no longer withdraw funds, and payments switch to Principal & Interest (P&I) to pay off the balance.
The transition from interest-only to P&I results in a sharp increase in the monthly payment. This modeler visualizes this shock, which is a critical consideration for budgeting. Using equity to pay off high-interest debt? Compare strategies with our Debt Snowball vs. Avalanche Calculator.
How Time Horizon Matters
If you plan to sell the home soon, the HELOC is often cheaper because you benefit from the low interest-only payments and avoid the high closing costs of a refinance.
If you plan to stay long-term, the decision becomes complex. You must weigh the benefit of keeping your low primary rate (HELOC) against the stability of a Cash-Out Refi. Use the interactive slider in this tool to see exactly where the break-even point is for your situation. If you're considering moving soon, check our Rent vs. Buy Calculator.
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