Cash-Out Refinance vs HELOC vs Home Equity Loan: Compare Your Options in Ohio
The best way to use your home equity depends mostly on one number: the rate on your current mortgage. If it’s well below today’s rates, keeping it and adding a smaller second loan usually costs less each month than replacing it. If it’s close to today’s rates, a cash-out refinance can make more sense.
This tool runs your actual numbers so you don’t have to guess. Sometimes keeping what you have wins, and it will show you that too.
AT A GLANCE
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Cash-Out Refinance vs HELOC vs Home Equity Loan: What’s the Difference?
All three turn home equity into cash. The difference is what happens to the mortgage you already have. A cash-out refinance replaces it with a bigger loan. A HELOC and a home equity loan leave it alone and add a second loan on top.
| Option | Your current mortgage | Rate | How you get the money | Monthly payment | Usually fits when |
|---|---|---|---|---|---|
| Keep current loans | Stays | Your existing rates | No new money | No change | Your debts are manageable and your mortgage rate is low |
| Cash-out refinance | Replaced by a larger loan | New fixed rate on the whole balance | Lump sum at closing | One new payment | Your current rate is close to today’s rates, or you need a large amount |
| HELOC | Stays | Variable, usually tied to the prime rate | Draw as you need it | Often interest-only at first, then rises | You need flexible access and have a short payoff plan |
| Home equity loan | Stays | Fixed | Lump sum at closing | Fixed second payment | You want a one-time payoff with a predictable payment |
Why Your Current Mortgage Rate Decides Most of This
A cash-out refinance doesn’t just price the new money. It reprices every dollar you already owe.
Here’s an example. Say you owe $250,000 at 3.25% with 25 years left, and you want $40,000 to pay off debt.
- Keep your mortgage and add a home equity loan of $40,000 at 8.5% (8.928% APR) for 15 years: $1,218 + $394 = $1,612 a month in principal and interest
- Cash-out refinance to $290,000 at 7.25% (7.454% APR) for 30 years: $1,978 a month in principal and interest
Hypothetical example for illustration only. Not a rate quote or an offer of credit. Home equity loan: $40,000 at a 8.500% fixed interest rate, 8.928% APR, 180 monthly principal and interest payments of $393.90, assuming $1,000 in prepaid finance charges. Cash-out refinance: $290,000 at a 7.250% fixed interest rate, 7.454% APR, 360 monthly principal and interest payments of $1,978.31, assuming $5,800 in prepaid finance charges. Existing mortgage: $250,000 at 3.25% with 300 monthly principal and interest payments of $1,218.29 remaining. Payments shown do not include taxes and insurance, so your actual payment will be higher. Your rate, APR, and costs depend on your credit, equity, property, and pricing at the time you apply.
That’s $366 a month more for the cash-out, and roughly $276,000 more in interest if both loans run full term. The rates are illustrations, not quotes. But the pattern holds: the lower your current rate, the harder it is for a cash-out refinance to win.
It works the other way too. If your current rate is close to today’s rates, or you have a big balance to consolidate, a cash-out refinance can come out ahead. That’s why the tool runs your actual numbers instead of guessing.
Does a Lower Monthly Payment Mean You Save Money?
No. This is the trap I see most often.
Take a $20,000 car loan at 7.5% with four years left. The payment is $484 a month, and you’d pay about $3,200 more in interest to finish it.
Roll that same $20,000 into a 30-year mortgage at 7.25% (7.454% APR, based on the cash-out example above) and that slice of the payment drops to $136. Feels great. But over 30 years, it costs about $29,000 in interest. Nine times more for the same car.
Hypothetical example for illustration only. The 30-year figure is the $20,000 share of the cash-out refinance example above: 360 monthly principal and interest payments of $136.44, 7.454% APR. Taxes and insurance are not included.
A lower payment can still be the right call if cash flow is the problem. Just go in knowing the price. And if you consolidate, keep paying close to what you paid before so the debt actually goes away.
What’s the Risk of Paying Off Credit Cards With Home Equity?
You’re turning unsecured debt into debt secured by your house. Miss a credit card payment and you get late fees and a credit hit. Miss a mortgage or HELOC payment and your home is on the line.
The bigger risk is behavior. If the cards get paid off and then run back up, you end up with the old debt and the new loan. If spending caused the balances, fix that first. Equity can’t solve it.
Two more things to know:
- HELOC payments can change. The rate is usually variable, and many HELOCs start interest-only. When the draw period ends, the payment can jump.
- The interest probably isn’t tax deductible. Home equity interest is deductible only on money used to buy, build, or substantially improve the home, and only if you itemize. Paying off credit cards or a car doesn’t qualify.
When Doing Nothing Is the Right Answer
A homeowner I’ll call John reached out after a major life change cut into his income. He had seven years left on a 15-year fixed mortgage, plus a HELOC. He wanted the lowest payment he could get.
We ran it several ways. The option that dropped his payment the most was rolling both loans into a new 30-year fixed. It would have saved him about $300 a month.
It would also have added 23 years to his mortgage. He was seven years from owning his home outright. That refinance would have pushed the finish line out to year 30.
I told him to keep what he had. He was in a much better position doing nothing.
That’s why this tool always shows “keep your current loans” as an option. Sometimes it wins.
How I Review Your Results
I’m T.C. Strait, a mortgage loan officer in Mason, Ohio. I’ve been doing this since 2002 and work with more than 30 wholesale lenders, so I can compare cash-out refinances, HELOCs, and home equity loans side by side instead of pushing one product.
If you ask for a review, I’ll look at:
- Current pricing for your credit, equity, and loan size
- Whether you qualify, and whether an appraisal is needed
- Total cost over the time you’ll keep the loan, not just the monthly payment
- Whether keeping what you have is the better move
I’m licensed in Ohio only. If the numbers say don’t borrow, I’ll tell you that.
Run your numbers or call or text me at 513-562-7926.
Just want a lower rate with no cash out? Start with Should I Refinance My Mortgage in Ohio? instead.
Common Questions About Using Home Equity
