Cash-out refinance vs. HELOC in 2026: which costs less?

The short answer

In 2026, a HELOC usually costs less than a cash-out refinance if your current mortgage rate is well below today's average, because a cash-out refinance reprices your whole balance. With the 30-year average at 7.32% (Freddie Mac, October 22, 2026) and the prime rate at 7.00% (Federal Reserve, Oct. 20, 2026), taking $60,000 out of a home with a $300,000 balance at 3.5% raises the monthly payment far less through a HELOC than through a cash-out refinance.

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Key numbers

30-year average: 7.32% (Freddie Mac)
Prime rate: 7.00% (Oct. 20, 2026)
Cash-out max LTV: 80% (conventional 1-unit and FHA)
HELOC rate basis: Prime + margin, usually variable

Side-by-side comparison

	Cash-out refinance	HELOC
What happens to your first mortgage	Replaced by a new, larger loan at today's rate	Stays in place at its current rate
Rate	Fixed or adjustable first-mortgage rate	Usually variable: prime rate plus a margin
Maximum borrowing	80% of value on a 1-unit primary home (Fannie Mae, FHA)	Often 80% to 90% combined loan-to-value, set by the lender
Closing costs	Typically 2% to 5% of the whole new loan	Often low; some charge annual fees
Payments	One fixed payment	Interest-only possible during the draw period, then principal and interest
Best when	Your current rate is at or above today's rates, or you need a large fixed-rate sum	Your current rate is low and you want to keep it

Worked example at this week's rates

You owe $300,000 at 3.50% with 25 years left (principal and interest about $1,502 a month) on a $500,000 home and want $60,000.

Cash-out refinance: new loan of $360,000 plus about $10,800 in closing costs (3%), so about $370,800 at 7.32% for 30 years. Payment: about $2,547 a month, roughly $1,045 more than today.
HELOC: keep the $300,000 first mortgage and draw $60,000. At an illustrative 8.50% (prime of 7.00% plus a 1.50% margin), interest-only payments are about $425 a month during the draw period, or about $521 a month if repaid over 20 years at that rate.

The HELOC adds roughly $425 to $521 a month; the cash-out refinance adds about $1,045. The HELOC rate can rise if the Fed raises rates again, so stress-test the payment at a rate 2 points higher. HELOC margins vary by lender and credit score; the 1.50% margin here is an illustration, not a quote.

When a cash-out refinance wins

Your current mortgage rate is close to or above today's average.
You want one fixed payment and no rate risk on the borrowed amount.
You're also consolidating high-rate debt and can lower your overall monthly payments. Run the numbers in the cash-out refinance calculator.

Rules that apply to both

Interest deductibility: interest on home equity debt is deductible only if the money buys, builds or substantially improves the home securing the loan (IRS Publication 936).
Waiting periods: a conventional cash-out refinance needs the existing first mortgage to be at least 12 months old (Fannie Mae B2-1.3-03); FHA needs 12 months of living in the home.
Your home is the collateral. Missing payments on either can lead to foreclosure.

Frequently asked questions

Is a HELOC or cash-out refinance better in 2026?

If your current rate is well below today's roughly 7% average, a HELOC usually costs less because your low-rate first mortgage stays. If your rate is already near today's level, a cash-out refinance gives one fixed payment.

Are HELOC rates higher than mortgage rates?

Usually yes. HELOCs are typically priced at the prime rate (7.00% on Oct. 20, 2026) plus a margin, and they are variable.

How much can I borrow with a cash-out refinance vs. a HELOC?

A conventional or FHA cash-out refinance is capped at 80% of your home's value on a 1-unit primary home. HELOC limits are set by each lender, often 80% to 90% combined loan-to-value.

Do HELOC rates go up when the Fed raises rates?

Yes, for variable-rate HELOCs. Banks move the prime rate with the federal funds rate, so a quarter-point Fed hike usually raises HELOC rates a quarter point.

Which has lower closing costs?

HELOCs, usually. A cash-out refinance charges 2% to 5% of the entire new loan amount.

Sources

Prepared by the MortgageInfo.us editorial team from primary sources. General education only, not financial, legal, or tax advice. How we research and fact-check.