HELOC or cash-out refinance: which is cheaper for an investor?
If your first mortgage carries a rate well below today's market, a HELOC is usually cheaper, because it prices only the new money and leaves the low-rate balance alone; a cash-out refinance reprices the entire loan. If your first mortgage is close to market rates, is small, or does not exist, a single cash-out loan is usually cheaper per dollar and simpler to carry. The deciding number is the blended monthly cost of the old first plus the line against one new loan for the combined amount, over the years you expect to hold the property.
THE NUMBERS
| Line amount | $15,000 – $750,000 (program’s range; your maximum depends on value, liens, credit and verified income) |
|---|---|
| Valuation | Automated valuation for eligible lines under $400,000 · appraisal above $400,000; confirm the exact threshold with the lender |
| Rate type | Fixed; variable where this program offers it (not in every state) |
| Terms | 5, 10, 15 or 30 years |
| Draw structure | 100% drawn at origination · repaid principal can be redrawn for 2–5 years, each redraw priced on its own date |
| Funding time | As few as 5 business days, on eligible lines, with remote online notary on lines under $400,000 |
| Origination fee | 0% – 4.99% of the initial draw, on eligible lines |
| Property use | Primary residence, second home and investment property; the lender confirms property-type eligibility |
| Combined LTV | Varies; 85% used only for illustrative equity arithmetic |
| Credit | Soft pull to see an offer · minimum generally 640, 680 on investment property |
| Ownership | Owners on title individually, jointly or in a revocable trust — not an LLC |
| Availability | Varies by state |
PROGRAM FACTS AS OF OCTOBER 2026 — not a quote, an offer or a commitment to lend. Rates, terms and eligibility are set by the lender and change.
Why does the first mortgage rate decide most of the answer?
Because a cash-out refinance does not just price the cash you take out — it pays off the existing first mortgage and replaces it at today's rate. An investor who locked a rental at its existing rate and refinances to pull $150,000 now pays a current rate on the old $300,000 as well as the new money. A HELOC sits behind that first loan as a second lien, so the existing balance keeps amortising at its existing rate and only the $150,000 carries the newer, higher rate. The wider the gap between your first-lien rate and today's market, the stronger the case for the second lien. When the gap is small — say your first loan is within half a point of market — the HELOC's own higher rate on the new money usually loses to one blended cash-out loan, and you also avoid carrying two payments.
How do I compare the two honestly?
Put both options on a monthly basis and hold them to the same horizon. Option one: the payment on your existing first mortgage, unchanged, plus the payment on the HELOC over the term you would choose. Option two: the payment on one new loan equal to the old balance plus the cash you need, at a cash-out rate, over thirty years. Then add the costs to get each one: the HELOC's origination fee, which ranges from 0% to 4.99% of the initial draw, against points, title, appraisal and closing costs on the refinance. Finally, look at how long you will hold. A HELOC on a 15-year term repays principal far faster than a 30-year refinance, so its monthly payment can look higher even when its total interest is lower — compare total interest over your holding period, not just the payment.
What changes when the rental is in an LLC?
Almost everything. This program is available to individuals and revocable trusts on title, not to LLCs, and verifies personal income — business income and business bank accounts do not count. Many investors deliberately hold rentals in an entity for liability reasons and would rather not deed a property out of it to borrow. A DSCR cash-out refinance closes in the LLC, is underwritten on the property's rent rather than your personal income, needs no tax returns, and does not add to your personal debt-to-income on the next application. For an entity-held rental the comparison is usually not HELOC versus cash-out at all; it is DSCR cash-out versus leaving the equity where it is.
Which one carries more risk?
Different risks. The HELOC adds a second payment and a second lien; if you later want to refinance the first mortgage, the HELOC lender may need to subordinate or be paid off. Redraws of repaid principal are priced on the day you take them and can be more expensive than the first draw. The cash-out refinance concentrates everything in one loan with one rate and one payment, but resets the term to thirty years and gives up the low first-lien rate permanently. On a primary residence the stakes are higher: either way you are borrowing against the roof over your head, and a consumer line on your home should be sized to a use with a known repayment source.
When should I take the cash-out instead?
Take the cash-out when your first mortgage rate is near market or the balance is small relative to the cash you need; when the property is held in an LLC; when you need leverage beyond the HELOC's combined loan-to-value ceiling or its maximum line; when you want a 30-year payment because the rent has to carry it; or when you want the property qualified on rent instead of your personal income. Take the HELOC when the first loan is cheap and large, you are an individual or trust on title, you will repay the line inside a defined period, and the origination fee is small relative to the interest saved.
Worked example — $600,000 rental, $300,000 first at its existing rate, $150,000 needed
| Existing mortgage | $300,000 |
|---|---|
| New cash needed | $150,000 |
| Total principal before costs | $450,000 |
ILLUSTRATIVE principal arithmetic, not a quote. Compare actual payments, terms and fees over the same holding period; the calculator estimates equity room.
WHAT YOU'LL NEED
- Current mortgage statement — balance, rate and remaining term on the first lien.
- Ownership — whether title sits with you, a revocable trust or an LLC.
- Holding period — how long you expect to keep the property and the line.
- Use of funds — what the cash is for and how it will be repaid.
FREQUENT QUESTIONS
- Is a HELOC always cheaper than a cash-out refinance?
- No. It is usually cheaper when the first mortgage rate is well below market. When it is close to market, a single cash-out loan is often cheaper per dollar and simpler.
- Can I compare them on this site?
- Yes. The HELOC calculator shows illustrative equity; compare actual loan offers with the desk.
- Does a HELOC replace my first mortgage?
- No. It adds a second lien; a cash-out refinance replaces the existing mortgage.
- Which is better for an LLC-held rental?
- Usually the DSCR cash-out, because this HELOC lends to individuals and revocable trusts, not LLCs.
RELATED
PART OF SILT ACADEMY → COURSE 10: USING HOME EQUITY · LESSON 10.2
Reviewed October 2026 · Home equity lines are offered through a lending partner; Silt Capital does not originate HELOCs. Terms and eligibility are set by the lender.