When you need to access cash, you have options, and each comes with different costs, benefits, and trade-offs. Three of the most common ways to borrow are through a home equity line of credit (HELOC), a cash-out refinance, or a personal loan.
If you’re trying to figure out which option will actually save you the most money, this guide breaks down how each works, what they cost, and when each makes the most financial sense.
The Quick Overview
HELOC: A revolving credit line secured by your home equity. Borrow as needed up to your limit, pay interest only on what you use, and typically get lower rates than unsecured loans.
Cash-Out Refinance: Replace your existing mortgage with a new, larger loan and pocket the difference in cash. You get one new interest rate for the entire loan amount.
Personal Loan: An unsecured lump-sum loan not tied to your home. Faster to get, but typically comes with higher interest rates.
How They Compare on Cost
Interest Rates
- HELOC: Rates are typically slightly higher than first mortgage rates, though still significantly lower than unsecured loans. The exact rate depends on the current rate environment and your credit profile. Rates are usually variable, though some lenders offer fixed-rate options. Because your home secures the loan, rates are generally much lower than personal loans.
- Cash-Out Refinance: Your new mortgage rate will depend on current market rates. If today’s rates are higher than your existing mortgage rate, you could end up paying significantly more interest on your entire loan balance, not just the cash you’re taking out.
- Personal Loan: Usually ranges from 8% to 36%, depending heavily on your credit score. Unsecured loans carry higher risk for lenders, which translates to higher rates for borrowers.
Fees and Closing Costs
- HELOC: Some lenders charge appraisal fees, origination fees, or annual fees, but many offer low-cost or no-closing-cost options. HELOCs tend to carry lower upfront costs and fees than cash-out refinances.
- Cash-Out Refinance: Expect to pay 2% to 5% of your new loan amount in closing costs—appraisal, title insurance, origination fees, and more. On a $300,000 refinance, that’s $6,000 to $15,000 in upfront costs.
- Personal Loan: May include origination fees (typically 1% to 8% of the loan amount). Setup is faster and simpler than home-secured options.
How Much You Can Borrow
- HELOC: Typically up to 80 to 90% of your home’s value minus what you owe on your mortgage. The exact amount depends on your equity, income, and creditworthiness.
- Cash-Out Refinance: Generally allows you to borrow up to 80% of your home’s value, though some programs go higher. You’re replacing your entire mortgage, so the cash you receive is the difference between your new loan and your existing balance.
- Personal Loan: Usually ranges from $1,000 to $100,000, depending on your credit, income, and the lender. No home equity required, but borrowing limits are typically much lower.
Tax Implications
- HELOC: Interest may be tax-deductible if the funds are used to buy, build, or substantially improve the home securing the loan. Consult a tax advisor for your situation.
- Cash-Out Refinance: Like a HELOC, mortgage interest may be tax-deductible if used for qualified home improvements. The same IRS rules apply.
- Personal Loan: Interest is generally not tax-deductible, regardless of how you use the funds.
When a HELOC Makes the Most Sense
- Your current mortgage rate is low and you don’t want to replace it with a higher rate
- You need flexible access to funds over time rather than one lump sum
- You want to borrow a moderate amount without paying hefty refinancing costs
- You’re using the money for home improvements and want potential tax benefits
- You’re comfortable with variable rates or want the option to lock in portions at fixed rates
When a Cash-Out Refinance Makes the Most Sense
- Current mortgage rates are lower than your existing rate, so refinancing improves your overall loan terms
- You need a large lump sum and want the simplicity of one monthly mortgage payment
- You plan to stay in your home long enough to recoup closing costs through lower monthly payments
- You prefer the predictability of a fixed interest rate on the entire amount
When a Personal Loan Makes the Most Sense
- You don’t have significant home equity or don’t want to use your home as collateral
- You need money quickly and want to avoid the appraisal and underwriting process
- You’re borrowing a smaller amount (under $50,000) and don’t need the higher borrowing power of a home-secured loan
- You have excellent credit and can qualify for competitive personal loan rates
Real World Example
Let’s say you need $50,000 for a major expense. Here’s how the math might work:
- HELOC at 8% variable rate: Monthly payment of approximately $606 (principal and interest). Total interest paid over 10 years: approximately $22,700. Origination fee of 1 to 3% is around $500-$1,500.
- Cash-Out Refinance: If your current mortgage is $200,000 at 3.5%, refinancing to $250,000 at 7% increases your monthly payment by about $665. But here’s the catch - you’re now paying 7% on your entire $250,000 balance instead of 3.5% on $200,000. Over 10 years, the additional interest cost on your original $200,000 alone is approximately $70,000, plus you’ll pay $8,000+ in closing costs upfront.
- Personal Loan at 15% for 10 years: Monthly payment of approximately $806. Total interest paid: approximately $46,700. Origination fee of 5% adds $2,500 upfront.
In this scenario, the HELOC offers the lowest total interest cost at $22,700. The cash-out refi is by far the most expensive because you’re paying a higher rate on your entire mortgage balance, not just the $50,000 you need. The personal loan is faster and simpler but costs more than double the HELOC in interest alone. In this scenario, the HELOC offers the most flexibility with reasonable costs, especially if you don’t need all $50,000 at once. The cash-out refi only makes sense if you’re also improving your base mortgage terms. The personal loan costs more in interest but offers speed and simplicity.
The Bottom Line
Which option makes the most sense depends on several factors: your existing mortgage rate (if you have an existing mortgage) versus today’s market rates, how much you need, how quickly you need it, and how long you’ll carry the debt.
A HELOC typically wins for flexibility and cost-efficiency when you want to preserve a good existing mortgage rate and need ongoing access to funds.
A cash-out refinance makes sense when you can improve your overall mortgage terms while accessing equity—but be cautious if today’s rates are higher than your current rate.
A personal loan works best for smaller amounts, faster timelines, or situations where you want to keep your home out of the equation entirely.
Run the numbers for your specific situation, including closing costs, interest rates, and total interest paid over time. The cheapest option on paper today could cost more if you’re not factoring in the full picture.
