Your old low rate is an asset — compare on blended rate, not headline rate
Data verified: Aug 2026 · Source: Federal Reserve H.15
Weighing a HELOC vs cash out refinance? Compare them on blended rate rather than headline rate — an old low first mortgage is a real asset.
Your details
Lower blended rate
—
Two routes compared
Detail
✓Your existing — mortgage is well below the — refinance rate. Keeping it and adding a HELOC gives a blended rate of — — far better than refinancing everything at —.
✓Refinancing is cheaper here, because the new rate of — is at or below your current —. You also get one fixed payment instead of a variable second lien.
⚠The total borrowing of — is — of your home value. Most lenders cap combined loan-to-value at 80–85%, so this may not be approved as structured.
⚠The HELOC rate is variable — prime plus —. If prime rose 2 points, your HELOC payment during the draw period would go from — to — a month.
Monthly cost, HELOC route over time
Years
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How this is calculated
A cash-out refinance replaces your existing mortgage with a bigger one and hands you the difference. You get a single fixed payment, but the new rate applies to the entire balance — including the part you had already been paying at your old rate.
A HELOC leaves the first mortgage alone and adds a second lien secured against your equity. The rate is variable, set at the prime rate plus a margin, and the draw period is usually interest-only before the balance amortizes. The right comparison is the blended rate across both loans, not the headline rate on either.
Formula
cash-out refi: newLoan = balance + cash; payment on newLoan at refiRate
closing costs typically 2–5% of the new loan
HELOC: rate = prime + margin (variable)
draw period: interest only = drawn × rate / 12
repayment period: amortize the drawn balance
blendedRate = (bal1 × rate1 + bal2 × rate2) / (bal1 + bal2)
The WSJ prime rate is 6.75% as of December 2025 and unchanged through the July 2026 FOMC meeting. A HELOC rate moves with prime, so the blended figure is a snapshot, not a fixed promise.
Worked example
A $250,000 balance at 4.0%, with $50,000 of cash needed and a home worth $500,000.
Cash-out refinance: $300,000 at 6.5%about $7,500 in costs
HELOC: $50,000 at prime + 1.5% = 8.25%first mortgage untouched
Anyone holding a mortgage from the low-rate years owns something genuinely valuable. A cash-out refinance destroys it — the new rate applies to the whole balance, not just the new money. In the worked example, refinancing costs almost two extra percentage points on $250,000 that was perfectly happy at 4%. That is the single most important thing this calculator shows.
What the draw period hides
Interest-only payments during the draw period look cheap because they are not repaying anything. When the repayment period begins, the full balance must amortize over a shorter remaining term, and the payment can double or worse. Model the repayment-period payment before you draw, not after.
Variable means variable
A HELOC is priced off prime. Prime moves with the federal funds rate, and it has moved a long way in living memory. Stress-test the payment two or three points higher than today before committing — particularly if the balance is large relative to your income.
When the refinance genuinely wins
If your current rate is at or above the market rate, refinancing is usually better: one fixed payment, no variable-rate exposure, and no second lien. The HELOC advantage exists only because of the gap between an old cheap rate and today's market.
Frequently asked questions
What is a blended rate?
The weighted average interest rate across all your borrowing. If you keep $250,000 at 4% and add a $50,000 HELOC at 8.25%, your blended rate is 4.71%, and that is the figure you should compare against a single cash-out refinance rate. Comparing the HELOC's headline 8.25% against a 6.5% refinance is the mistake almost everyone makes.
Is a HELOC always cheaper?
No. It wins when your existing first mortgage rate is well below current market rates, because a refinance would reprice the entire balance rather than just the new money. If your current rate is already at or above market, a cash-out refinance is usually better and gives you a single fixed payment with no variable-rate exposure.
How much can I borrow?
Most lenders cap combined loan-to-value at 80% to 85% of the home's value across all liens. On a $500,000 home carrying a $250,000 first mortgage, that typically leaves $150,000 to $175,000 of accessible equity. Credit score, income and property type all affect where within that range a particular lender will actually land.
What happens when the draw period ends?
You can no longer draw, and the outstanding balance begins amortizing over the repayment period. Because interest-only payments during the draw period repaid no principal at all, that payment jump can be severe, often doubling or worse. Model the repayment-period payment before you draw rather than discovering it ten years later.
Is the interest deductible?
Only if the funds are used to buy, build or substantially improve the home securing the loan, and only if you itemize. Using a HELOC to consolidate credit cards, pay tuition or fund a wedding does not qualify under current law, regardless of the fact that the loan is secured by your house.
Can the lender freeze my HELOC?
Yes. Lenders can reduce or suspend an undrawn credit line if property values fall or your financial position deteriorates, and they did so widely in 2008. That is an important reason not to treat an unused HELOC as a guaranteed emergency fund, because it is most likely to be withdrawn precisely when you would need it.
Estimates for general information only, not mortgage advice. HELOC rates are variable and will change with the prime rate. Combined loan-to-value limits, credit requirements and lender fees vary. Principal and interest only.