How Much a Cash-Out Refinance Costs Versus a Second Mortgage

The Quick Read: Neither option is cheaper in the abstract. The cost depends on the loan base, the lien position and how the property is titled. A cash-out refinance applies its costs to the whole new loan, while a second mortgage applies them to the new money only and sits alongside the existing first loan as a separate obligation.

• A cash-out refinance replaces your first mortgage. A second mortgage leaves it alone.
• Fees on a cash-out apply to the full new balance. Fees on a second lien apply to the amount you borrow.
• Title often decides the choice first. An LLC-owned rental usually rules out a second-lien equity line.
• Either way, rent coverage drops after the new debt, so test the ratio before you commit.
• Pricing lives in the calculator, not in this comparison. This piece covers structure and fit.

Here is the honest answer. A cash-out refinance fits the investor who wants one lump sum, whose existing first mortgage is not worth protecting, or whose rental sits in an LLC. A second mortgage fits the investor who owns the property personally, holds a first mortgage worth keeping, and needs a defined amount of cash. Both can work. Which one is cheaper depends on facts only you have.

Side-by-Side

Here is how the two structures compare. The figures reflect typical guidelines from select lenders in Lendmire’s wholesale network, which is the group of lenders Lendmire works with to place loans. Every file is reviewed individually, and nothing here is a commitment to lend.

A few terms need plain definitions. LTV is the loan-to-value ratio, meaning the loan divided by the property’s value. CLTV is combined loan-to-value, which adds every loan on the property before dividing. PITIA is principal, interest, taxes, insurance and any association dues. Seasoning is the waiting period between buying a property and borrowing against it. DSCR, or debt service coverage ratio, is monthly rent divided by PITIA.

What Actually Drives the Cost

Cost has three drivers: the base the fees apply to, what you give up, and what the new debt does to your coverage.

The base. A cash-out refinance is a brand-new first-lien loan. Its closing costs generally scale with the entire new balance, not just the cash you pull out. A second lien is a smaller note, so its costs generally scale with that smaller amount. That is why a modest cash need against a large first mortgage often favors the second lien on upfront cost alone. Compare dollars against how long you will hold the loan, not percentages alone.

What you give up. A cash-out replaces your existing first mortgage with new terms across the whole balance. If your current first mortgage is favorable, that is a real cost, even though no closing statement lists it. A second lien keeps the first mortgage intact. The tradeoff is a second payment and a second set of rules.

What the loan does to coverage. A cash-out enlarges one payment. A second lien adds another. Either way, rent has to cover more debt. DSCR compares rent to PITIA only, so clearing 1.00 does not mean positive cash flow. Repairs, vacancy, management, utilities and capex all sit outside the ratio.

Some of the cost is also about risk, not fees. The federal consumer-finance regulator notes that a second mortgage, or junior lien, is repaid after the first loan if the home is sold to cover debts. It also notes that second lenders carry more risk of not being repaid in full. That ordering explains why second liens tend to come with tighter standards.

When a Cash-Out Refinance Is the Better Fit

A cash-out refinance is the better fit when the rental sits in an LLC, when you want one payment, or when you need a larger sum than an equity line allows. It also fits when the existing first mortgage is not worth keeping.

Title forces the issue. Equity lines on this network require the property to be held by an individual or a revocable living trust. LLCs, corporations, partnerships and irrevocable, blind or land trusts cannot hold title. Cash-out refinances on entity-held rentals are available under many DSCR programs, subject to lender program eligibility. Moving a deed out of an LLC to qualify for a second lien is not a casual step. It can raise due-on-sale questions with your existing first lender and weakens the liability separation the entity gave you.

Size matters. An investment-property equity line caps at $500,000 total, with no higher tier. A DSCR cash-out runs up to $3,000,000 on standard programs, with smaller balances available through select lenders. Above $2,500,000 the network generally holds to 30-year fixed structures. If your cash need or your property is bigger, the second lien runs out first.

It is reviewed on the property. A DSCR cash-out qualifies primarily on property-level rental income covering the payment, subject to lender guidelines. You do not lean on personal debt ratios, which matters if you already carry a lot of debt on paper. Many select programs start at a 1.00 coverage floor. Stronger ratios generally open better leverage and terms. A separate select-lender path takes coverage below 1.00, with leverage and terms adjusted. Most files want a score around 660, with a 620 floor in parts of the network and 700-plus unlocking the strongest tiers.

The property must have settled. Expect about six months of seasoning on most files, and commonly around six months of PITIA in reserves. Conservative files at modest leverage under $1,500,000 can see reserves waived. Larger loans typically step up to about nine months. Treat those as ranges, not promises.

Property types matter too. Manufactured homes, log homes and barndominiums are not offered in the DSCR programs. For a full tour of how these loans work, see Lendmire’s complete DSCR loans guide.

When a Second Mortgage Is the Better Fit

A second mortgage is the better fit when you own the property personally, your first mortgage is worth protecting, and you need a defined amount of cash. The structure rewards investors with strong personal credit and manageable debt ratios.

Picture an owner holding a rental in their own name. The first mortgage covers roughly half of the property’s value, and its terms are favorable. Pulling cash out through a refinance would reset that whole balance. An equity line on the investment property leaves the first mortgage untouched and can bring combined leverage up to 70% CLTV. That is a modeled assumption, not a market quote. The ceiling is below the typical cash-out ceiling, but the owner keeps the original loan. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.

What the line looks like. On this network, an investment-property equity line is a standalone line that can sit in first or second lien position. It runs a five-year draw period followed by a 25-year repayment period. Pricing floats during both phases and does not convert to fixed. At least 75% of the line is drawn at closing, which surprises people. The idea that you open a line and draw only when needed is mostly lost on investment lines, because most of the money goes out the door on day one.

Who qualifies. Eligibility rests on you, not just the rent. The minimum credit score is 700. The maximum debt-to-income ratio is 50%, calculated on the interest-only payment at the maximum draw. Lines up to $500,000 ordinarily use an automated valuation instead of a traditional appraisal, though a higher CLTV may call for a secondary one. Eligible property types include single-family, two-to-four-unit, PUD, townhome and condominium, including non-warrantable condos. Manufactured homes, co-ops, condotels, log homes, commercial, mixed-use and agricultural zoning are not eligible.

Reach is narrower. Equity lines come through Lendmire’s 16 full-service states only, which is a smaller footprint than the 41-market DSCR network, Washington, D.C. included. Lendmire is a broker, so it arranges these lines through select wholesale partners and is never the lender. A borrower is also limited to three lines, and an owner of more than 15 financed properties is not eligible.

Consider the risks. The federal HELOC booklet says a HELOC generally has to be paid off in full if you sell. It defines equity as your home’s value minus the mortgage balance. Lenders can also freeze or reduce a line if the property’s value falls significantly. A line backed by a rental is a living obligation, so size it for the worst year, not the best one.

Investor discussion draws a similar fit line. One BiggerPockets thread on HELOC versus cash-out frames a cash-out as suited to one-time, known capital needs and a line as suited to staged or uncertain ones. That is commentary, not guidance. But the logic holds, with one network-specific wrinkle: the 75% draw at closing narrows the staged-use benefit on investment lines.

Worked Example: The Same Rental, Two Paths

Run the numbers on a rental held in an individual’s name. These are modeled assumptions, not market data. The first mortgage covers about half of value. Rent covers the current PITIA at roughly 1.4x.

Path one, cash-out. The investor refinances to around 75% LTV. The new first loan replaces the old one. Coverage falls because the single payment is now much larger. A modeled outcome might sit near 1.0x. That is still within what many select programs start at, but it leaves little cushion. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.

Path two, equity line. The investor keeps the first mortgage and adds a line to 70% CLTV. Coverage in a DSCR sense does not govern the line, since it is underwritten on personal income and debt ratios. But the combined obligations still sit on the same rent. A prudent investor tests the rent against both payments together.

Neither path produces a free lunch. The higher the combined leverage, the thinner the rent coverage, and the less room you have when a unit sits vacant. That is where files go wrong. Lendmire’s piece How Much a DSCR Cash-Out Refinance Leaves After Payoff and Costs walks through the net-cash side of the first path.

Edge Cases Worth Knowing

A paid-off rental. If no first mortgage exists, an equity line takes the first-lien position. The keep-my-first-mortgage argument disappears, and the comparison turns on structure, size and title.

An existing second lien. Adding a refinance means the old second must be paid off or subordinated. That changes the math, so raise it early.

Larger portfolios. Equity-line options narrow as you finance more properties, and this network caps lines at three per borrower. DSCR cash-out files are reviewed property by property.

Tax. Tax treatment can depend on how the funds are used and how the property is held; investors should keep clear records and speak with a qualified tax professional before relying on any deduction.

A Balanced Verdict

Choose the cash-out refinance if your rental is in an LLC, you need more than $500,000, or your first mortgage is not worth keeping. It is reviewed on rent, not personal income. Choose the equity line if you hold title personally, your first mortgage is worth protecting, your credit is 700 or better, and you can live with a floating-price, mostly-drawn line.

If your numbers sit on the edge, test coverage after the new debt before you pick. The cheaper option on paper can be the riskier one in a slow month. For a second view, Lendmire’s article Second-Lien HELOC vs Cash-Out Refinance for a Low Fixed Mortgage takes up the low-fixed-first-mortgage case in more depth.

If you are weighing a home equity line against a cash-out refinance and want to see how the numbers work, Lendmire can help you compare options based on the property, the equity available, credit profile, combined leverage, and your goals.

Investors weighing their equity options can start with Lendmire’s guide to cash-out refinance on an investment property.

For current guidelines and terms, see Lendmire’s DSCR loan programs page.

About Lendmire

As a mortgage broker (NMLS# 2371349), Lendmire helps homeowners and real estate investors in its 16 full-service states open home equity lines of credit arranged through wholesale lenders. Lendmire is never the lender; line amounts, ceilings and terms are set by the lender under its guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. CFPB – What is a second mortgage loan or junior lien?

2. CFPB – HELOC booklet

3. BiggerPockets – HELOC vs cash-out refi