HELOC vs cash-out refinance: run the numbers before you reprice
This is the central decision in the current market, and for homeowners holding a low-rate first mortgage it is rarely close.
Reviewed October 2026 · Matt Casillas, NMLS #339780
If your first mortgage rate is well below today’s market, a second lien is usually worth comparing first. A cash-out refinance replaces your entire mortgage at the current rate to access part of your equity. With the 30-year fixed averaging 7.24% (Freddie Mac Primary Mortgage Market Survey, October 29, 2026), repricing a 3% balance to reach part of your equity rarely works. A HELOC leaves the first mortgage alone.
| HELOC (second lien) | Cash-out refinance | |
|---|---|---|
| Your first mortgage | Untouched. Same rate, same balance, same term. | Paid off and replaced at today’s rate. |
| What gets repriced | Only the new money you borrow. | Your entire mortgage balance. |
| Closing costs | An origination fee on the new money only, plus recording costs. | Full refinance costs, typically 2–5% of the new loan amount. |
| Timing | Funds are sent after you sign and any rescission period ends, then typically arrive in 2–3 business days. Valuation, verification and any lien payoff affect how long it takes to reach signing. | Typically 30 to 45 days. |
| Amount available | Depends on your equity, credit score, existing liens and debt-to-income. The highest amounts require a 760+ score. | Generally up to 80% CLTV, so potentially larger. |
| Makes sense when | Your existing rate is below market — which is most homeowners right now. | Your existing rate is at or above market, or you need more than a second can reach. |
The arithmetic, worked
An illustration, not an offer: take a homeowner with a $1,400,000 property, a $600,000 first mortgage at 3.25%, and a need for $200,000 to build an ADU.
Cash-out refinance. New loan of $800,000 at today’s first-mortgage rate — 7.24% in Freddie Mac Primary Mortgage Market Survey on October 29, 2026. The entire balance is now repriced — including the $600,000 that was sitting comfortably at 3.25%. The monthly payment on the new loan runs far above the existing one, and a large share of that increase buys nothing: it is simply the cost of repricing money you had already borrowed cheaply.
Second lien. The $600,000 first mortgage stays at 3.25%, untouched. You add $200,000 as a second at second-lien pricing. Your total payment rises by the cost of the new $200,000 and nothing else.
Even where the second-lien rate is higher than the refinance rate, the second wins comfortably — because it is applied to $200,000 rather than $800,000. That is the whole argument, and it is why second-lien originations have grown while refinance volume has not.
When the refinance is still right
- Your current rate is at or above market. If you bought or refinanced at 7%, there is no low rate to protect and a refinance may improve everything at once.
- You need more than your equity supports as a second lien. A cash-out refinance is sized differently and may reach further.
- You are removing someone from the loan. A divorce or partnership split often requires a new first mortgage regardless of rate.
- You want to eliminate mortgage insurance. If you hold an FHA loan with lifetime MIP and now have 20% equity, the refinance may pay for itself.
The one thing to check first
Look at your current rate and your remaining balance. If the rate starts with a 2, 3 or 4 and the balance is substantial, the answer is almost certainly a second lien and the refinance conversation can stop there.
Still not sure which one fits?
Describe the situation and you will get a recommendation with the reasoning, not a product pitch.
Questions
When your first mortgage is well below current market rates, yes, almost always. A cash-out refinance reprices your entire balance to reach part of your equity. A second lien leaves the first mortgage untouched and charges the higher rate only on the new money.
Almost certainly not. Replacing a 3% balance at today’s first-mortgage rate — 7.24% in Freddie Mac’s survey on October 29, 2026 — costs you far more than the cash is worth. A HELOC reaches the same equity without disturbing the rate you already hold.
When your existing rate is at or above current market, when you need more new money than a second lien can reach, when you must remove a borrower from the loan, or when you are eliminating FHA mortgage insurance you can no longer cancel.
No. Rate, balance, term and payment all stay exactly as they are. The second lien records behind it as a separate loan.
These are the requirements for the home equity line we place. Other lenders set their own guidelines, and some are more flexible.
Disclosures
- Approval may be granted in five minutes but is ultimately subject to verification of income and employment, as well as verification that your property is in at least average condition with a property condition report. Five business day funding timeline assumes closing the loan with a remote online notary, and where loan amounts are under $400,000 which would not require an appraisal. Funding timelines may be longer for loans secured by properties located in counties that do not permit recording of e-signatures or that otherwise require an in-person closing, or that require a waiting period prior to closing, or where loan amounts exceed $400,000. On a primary residence, funds are sent after the three-business-day rescission period ends. Not all applicants will qualify.
- “Typically lower rates” compares home equity lines with credit cards and unsecured personal loans using published national averages, which are secured and unsecured products with different terms. Your rate depends on your application and is shown in your offer. “No out-of-pocket costs” means the origination fee and closing costs are paid from the line rather than in cash at closing; they are still costs, and they appear in your offer alongside the APR.
Ask about your property
How a HELOC compares, explained plainly, including when something else is the better choice.