Home Equity Borrowing Costs More: Compare HELOCs, Loans and Refinancing

Home equity can help pay for renovations, college, living costs or high-interest debt, but borrowing against it now takes more planning. Homeowners had a record $35.8 trillion in equity this year, up 2.2% from 2025 and nearly four times the 2012 level, Federal Reserve data shows. More than 1 million Americans borrowed against that equity in the first half of 2026, the highest first-half total since 2022, according to Intercontinental Exchange.

Home equity lines of credit, or HELOCs, remain the most common choice by borrower count and dollars borrowed. Yet cash-out refinancing has gained ground: the number of homeowners choosing it rose 12% in the year through June 30 and 33% since 2024. HELOCs edged up 1% over the same comparison period cited in the source.

Borrowing costs have risen after the Fed’s rate increase this fall, with further increases hinted at. Home equity loans and second mortgages are now in the 7% to 8.5% range, but can still cost less than other forms of financing. Mortgage Bankers Association chief economist Michael Fratantoni says they may make sense for consolidating high-interest credit card, student or car debt. The savings depend on the rates and fees you’re offered, and on whether you can manage the payments.

Match the loan to the expense

Start with three questions: When will you need the money? How much will you borrow? How much payment uncertainty can your budget handle? The answers help narrow the choice between a variable-rate HELOC, a fixed-rate home equity loan and a cash-out refinance.

A home equity loan provides a lump sum, which can suit a one-time expense with a known cost. A HELOC lets you draw money as needed, making it more flexible for spending that happens in stages. Certified financial planner Charley Corbett sums up the distinction: “A lump-sum need calls for a home equity loan. Ongoing flexibility calls for a HELOC.” A line of credit’s variable rate also means payments can rise, so flexibility comes with uncertainty.

Think through what a rate increase would do to your budget before choosing a HELOC. Certified financial planner Steven Rogé suggests that if a rise of one or two percentage points from the starting rate would strain your finances, a fixed-rate loan may be safer. A calculator such as mortgagecalculator.org can help illustrate how different rates affect payments.

For a cash-out refinance, compare the new mortgage’s rate and costs with those on your current loan. Refinancing replaces the existing mortgage with a new one, so the rate applies to the refinanced balance, not just the cash you take out. Corbett says homeowners with first mortgage rates between 2% and 5% will generally be better off considering a HELOC or home equity loan. That makes the existing mortgage rate an important part of the comparison.

Give the numbers a second look

Don’t rush into an application. Mortgage broker John Donlon cautions that hurry can lead to mistakes. A little preparation may affect the offer: he says paying down enough credit card debt to move a FICO score from, for example, 735 to 740 could reduce fees by half a point or lower the offered interest rate by at least one-eighth of a percentage point.

Loan size can matter, too. Donlon says borrowing 75% of a home’s appraised value instead of 75.01% could cut the rate by as much as a quarter point. Those thresholds and potential savings depend on the lender’s terms and your circumstances, so ask how the lender calculates its offer. The source does not specify whether the stated fee reduction is measured in percentage points; confirm the fee and rate details in each quote.

These examples are reasons to check your figures before applying, not promises of a better deal. A small improvement in a credit score or a slight change in the amount borrowed may affect an offer, but the lender sets its own pricing. Ask for the actual rate, fees and payment schedule you qualify for.

Compare offers before choosing

Rates can vary by almost half a percentage point even for borrowers with nearly identical credit profiles, according to data. That gap makes it worth seeking several quotes. Senior attorney Andrea Bopp Stark of the National Consumer Law Center suggests using comparison sites such as Bankrate or AI tools to get a sense of potential rates and fees. Treat those results as a starting point; confirm the terms directly with lenders.

You can work with an independent mortgage broker or ask several lenders for offers yourself. Include one or two financial institutions you already know, then compare the written terms. Once you have competing offers, Stark says, you may be able to negotiate lower fees. Compare the full cost and structure of each option, including how the rate may change, rather than focusing on a single headline rate.

Economic uncertainty may also mean some lenders are keen to work with borrowers. Fratantoni says many lenders may be eager to make a deal when other borrowers hold back. That’s a reason to ask for quotes, not to assume you’ll qualify or that every offer will be affordable.

Whether you’re considering a HELOC or refinancing your mortgage, compare offers from several lenders before deciding. Keep the current mortgage rate, total borrowing cost and your ability to handle changing payments in view. A careful comparison can help you use home equity with a clearer understanding of what the debt will cost.

Home renovation financing and long-term goals are among the uses homeowners consider for equity. For more background, see what home equity is, what to consider when an adjustable-rate mortgage resets and what to watch for when refinancing.