Cash-Out Refinance vs HELOC Now That Rates Hit 7%

A homeowner with a $200,000 first mortgage at 6.30% who wants $50,000 should keep that mortgage and borrow the $50,000 on a HELOC or home equity loan. Refinancing the whole $250,000 at the 7.534% average 30-year refinance rate costs roughly $2,500 more in interest in the first year, and closing costs are charged on five times as much money. The choice between the two paths turns on a single figure: how far the existing rate sits below today's refinance rate, weighed against the size of the draw.

The 6.30% figure is not arbitrary. It is where the 30-year fixed averaged a year ago, according to Freddie Mac's Primary Mortgage Market Survey. The same survey put the rate at 7.03% for the week of September 24, 2026, up from 6.95% a week earlier and the highest reading of the year. Refinance pricing sits higher still. Fortune's refinance tracker had the 30-year conventional refinance at 7.534% on September 30. Almost every homeowner who bought or refinanced before this year holds a rate below that, and for those borrowers a cash-out refinance means paying more on money already borrowed in order to raise money that has not been.

A cash-out refinance has the virtues of simplicity. It produces one loan, one payment and one fixed rate, and it accepts a 620 credit score and a debt-to-income ratio just under 50%, according to Experian's comparison of the three products. Borrowing is capped at 80% of the home's value, so on a $400,000 house the new loan cannot exceed $320,000.

Its weakness is that the price applies to everything. Closing costs of 2% to 5% fall on the full new balance, which for a $250,000 loan comes to $5,000 to $12,500. The Mortgage Reports puts the range at 2% to 6% for refinances generally and notes that cash-out deals run higher because the balance is larger. Rolling those fees into the loan avoids writing a check, but the fees then accrue interest for 30 years. Closing also takes the longest of the three, at 30 to 60 days.

The borrowers it suits are those whose current rate is already at or above 7.5%, or whose remaining balance is small enough that repricing it costs little.

The HELOC leaves the first mortgage alone, which is its main appeal this autumn. Experian, using Curinos data, put the average at 7.53% for September, down from close to 9% in early 2025. Other surveys come out higher. Bankrate's survey had a 7.29% national average on September 30, with individual offers ranging from 3.99% to 11.60%. Fortune's Mortgage Research Center data showed 8.193%, and The Mortgage Reports cites 8% to 8.5% for most borrowers. That spread is wide enough that the lender matters about as much as the product.

Setup is cheap. Experian lists the same 2% to 5% range as the other products, but on the borrowed amount only, and The Mortgage Reports notes that many HELOCs carry minimal or no closing costs. The catch is the rate. It floats on prime, which tracks the federal funds rate, and the Fed raised that rate in September 2026 for the first time in three years. The way that hike flows through to a variable HELOC payment is the main risk of choosing this product. A second risk arrives at the end of the 5 to 10 year draw period, when interest-only payments give way to roughly 20 years of principal and interest.

The HELOC suits borrowers drawing in stages, such as a renovation billed over a season, who can absorb a rising payment.

The home equity loan also preserves the first mortgage, but it trades the HELOC's flexibility for a fixed rate. Experian's average was 7.69% in September. At that rate, a $50,000 loan over 10 years costs $598.48 a month and $21,817.46 in total interest. Bankrate is less generous: its national average of 8.46% on September 30 was a two-year high, the third weekly rise in a row, although lenders such as Third Federal were offering 6.69% APR.

The entry requirements are tighter, with Experian citing a 680 FICO score and a 43% debt-to-income ratio. Closing takes 4 to 7 weeks. For a lump-sum need, such as consolidating a credit card balance or paying a contractor up front, it is the safer second lien. Borrowers who want the low first rate without exposure to the Fed should choose this one.

The comparison comes down to blended rates. Keeping a $200,000 first mortgage at 6.30% and adding $50,000 at 7.53% produces a weighted rate of about 6.55% on $250,000. The cash-out refinance charges 7.534% on the whole amount. In the first year, that is roughly $18,800 of interest against $16,400. If the HELOC is priced at 8.5%, the top of The Mortgage Reports' range, the blend rises to about 6.74% and the gap narrows to around $2,000. The second lien still wins, and the refinance's extra $4,000 to $10,000 in closing costs has not yet been counted.

The point at which the refinance would break even can be calculated directly. The refinance wins on rate only when the existing rate sits within a certain distance of today's refinance rate. That distance equals the second lien's premium over the refinance rate, multiplied by the draw as a share of the existing balance. At Experian's averages the premium is effectively zero, because the HELOC and the refinance are both near 7.53%. That leaves no existing rate below 7.53% at which the refinance comes out ahead. With a HELOC at 8.5%, a $50,000 draw on a $200,000 balance moves the threshold to about 7.29%. A $60,000 draw on a $120,000 balance moves it to about 7.05%. Both thresholds remain above the rate most borrowers hold, and both ignore closing costs, which favor the second lien in every case.

The strongest objection is that the comparison sets a variable rate against a fixed one, during the same month the Fed began raising rates again. Fortune's assessment is that relief on mortgage rates looks unlikely in the near future. A HELOC opened today could cost noticeably more in two years, while the refinance rate stays where it was set. The risk is real.

It is also a long way off. For the 6.30% borrower, the HELOC would need to climb to roughly 12.5%, about five points above Experian's average, before the blended rate matched the refinance. Any borrower who would rather not carry that risk can use a fixed home equity loan. Even at Bankrate's 8.46%, the blend comes to about 6.73%, which is still eight-tenths of a point below the refinance.

Homeowners whose first mortgage is below about 7% should keep it. A borrower drawing in stages for a renovation, and able to carry a rising payment, should take the HELOC. A borrower who needs the money at once, or who is uneasy about the Fed, should take the home equity loan. A cash-out refinance makes sense only for a borrower whose current rate is already within a quarter to half a point of the 7.534% refinance average, or above it, or whose balance is small next to the draw. Most borrowers do not fit that description this year.

Lender pricing matters as much as the choice of product. Bankrate found HELOC offers ranging from 3.99% to 11.60% in the same week, and the gap between two quotes for the same product can exceed the gap between the products themselves. The sensible course is to get a cash-out refinance quote and two second-lien quotes on the same day, then compare them using the blended-rate test above. If the refinance quote does not beat the blended rate after its closing costs are added, the borrower should keep the existing mortgage.