The short answer: If your first mortgage rate is well below today's rates, a HELOC or fixed second mortgage usually costs less overall than a cash-out refinance, because you only pay today's rates on the new money. A cash-out refinance tends to win when your current rate is already close to today's, when you're borrowing a large share of your equity, or when you want one fixed payment. The right answer comes from your blended rate, not the headline rate.
Why does this question matter so much right now?
Because most homeowners are sitting on rates they'll never see again. As of mid-2026, about 49% of U.S. mortgages had a rate below 4%, and about 66% were below 5% (FHFA National Mortgage Database data, via Wolf Street). Meanwhile the national average 30-year fixed rate was 7.40% the week of October 15, 2026 (Freddie Mac PMMS).
U.S. mortgages by interest rate, Q2 2026
If you're in that first half, refinancing your whole balance to get cash means paying today's rate on money that currently costs you 3%.
How do the two options compare?
| HELOC or home equity loan | Cash-out refinance | |
|---|---|---|
| Your first mortgage | Stays as is | Replaced with a new, larger loan |
| Rate on the new money | HELOC: usually variable, priced off the prime rate; home equity loan: fixed | Today's first-mortgage rate on the whole balance |
| How much you can borrow | Commonly up to 80–90% of value combined, depending on the lender | Up to 80% of value on a one-unit primary home (Fannie Mae) |
| Closing costs | Often low | Similar to any refinance |
| Waiting period | Varies by lender | Your current loan generally must be 12 months old |
Sources: Fannie Mae Eligibility Matrix; Fannie Mae B2-1.3-03. HELOC limits are typical, not a rule.
HELOCs are usually priced as the prime rate plus a margin. The prime rate was 7.00% on October 15, 2026 (Federal Reserve H.15).
What's a blended rate, and why does it decide this?
Your blended rate is the average rate across everything you owe on the house. Here's a simplified, hypothetical example. Say you owe $600,000 at 3% and need $100,000:
- Keep the first and add a $100,000 line at a hypothetical 8%: your blended rate is about 3.7% on $700,000.
- Cash-out refinance all $700,000 at a hypothetical 7.4%: your rate is 7.4% on all of it.
The line's rate is higher, but it applies to a much smaller balance. The math flips when your first-mortgage rate is already close to today's rates, or when the cash you need is a large share of the total. This example is illustrative only; it is not a quote or an offer of credit.
When does a cash-out refinance still make sense?
- Your current rate is already near today's market rate.
- You're consolidating high-rate debt and want one fixed payment you can't redraw.
- You need more than a lender will allow on a second lien.
- You want to remove someone from the loan or change the term at the same time.
Is home equity interest still tax-deductible?
Only if you use the money to buy, build or substantially improve the home that secures the loan, within a $750,000 total mortgage-debt limit (IRS Publication 936). The 2025 tax law made the $750,000 limit permanent (Congressional Research Service). A HELOC used for a remodel can qualify; one used to pay off a car generally doesn't. Ask your CPA before you borrow.
Derek\'s take
The question I hear most is "should I refinance to get cash?" The answer I give most is "probably not your first mortgage." Send me your current statement and how much you need, and I'll show you the blended rate for each option side by side, so you can see the real cost before you decide.
Frequently asked questions
Is a HELOC rate fixed?
Most HELOCs are variable and move with the prime rate. A home equity loan is the fixed-rate version, paid out in one lump sum.
How soon can I do a cash-out refinance?
Under Fannie Mae rules, your existing first mortgage generally must be at least 12 months old.
How much equity can I take out?
A cash-out refinance on a one-unit primary home goes up to 80% of value. HELOCs commonly go to 80–90% combined, depending on the lender.
Can I deduct HELOC interest?
Only on money used to buy, build or substantially improve the home securing the loan, within the $750,000 limit.
Sources
- Freddie Mac Primary Mortgage Market Survey
- Federal Reserve H.15: Selected interest rates
- Wolf Street: Homeowners and their below-4% mortgages (FHFA data)
- Fannie Mae Eligibility Matrix
- Fannie Mae Selling Guide B2-1.3-03: Cash-out refinance
- IRS Publication 936: Home mortgage interest deduction
- Congressional Research Service R48611
This article is general education, not a commitment to lend, an offer of credit, or tax, legal or investment advice. All loans are subject to credit approval, income and asset verification, and property appraisal. Programs, rates, terms and limits change without notice; figures are current as of the publish date. Derek Shao, NMLS #242117, CA DRE #01358261. Financial Dynamics, Inc. DBA Emory Financial, Company NMLS #393986. Equal Housing Opportunity.
