Bank Statement HELOC vs Cash-Out Refinance When 79% of Homeowners Have a Rate Below 6%

The Quick Read: A home equity line is a standalone line that can sit behind your existing first mortgage, leaving that loan alone and adding a second payment. A cash-out refinance replaces the first mortgage and resets everything at once. Which one fits depends on how much the old first mortgage is worth keeping, how the property is titled, and how much leverage you need.

• A line suits borrowers who want to keep a first mortgage they like and only need a modest, flexible amount.
• A cash-out refinance suits borrowers who need a larger lump sum, a fixed-term structure, or LLC ownership.
• On an investment property, the home equity line in Lendmire’s wholesale network tops out at 70% combined loan-to-value (CLTV), which is the first mortgage plus the new line measured against value.
• Cash-out refinances on rentals generally reach about 75% loan-to-value (LTV) across most of the network.
• Both options are subject to lender guidelines, credit approval, and property review.

The line fits an owner who wants to keep a low first mortgage and borrow a modest amount, while the cash-out fits an owner who needs a large sum or holds title in an LLC. Redfin’s analysis of federal housing-finance data found that 78.8% of homeowners hold a mortgage below 6%, the lowest share in roughly a decade. That is why this comparison has become a real decision instead of a default.

One caveat on that number: it covers all mortgaged homeowners, not investors specifically. It tells you how common a low first mortgage is, not how any one landlord should borrow.

Side-by-Side

The table below compares the two structures. The line column reflects the home equity line programs Lendmire places through its wholesale network, where a line can sit in first or second lien position. The cash-out column reflects published industry norms plus the DSCR cash-out ranges the network commonly sees.

PITIA means principal, interest, taxes, insurance, and any association dues. DSCR, the debt service coverage ratio, is the property’s monthly rent divided by that obligation. Bank statement qualification means the lender studies 12 or 24 months of deposits instead of tax returns. Under this approach, the file is reviewed on documented income under the applicable program, subject to lender guidelines.

When a Bank Statement HELOC Is the Better Fit

A line is the better fit when you want to keep your existing first mortgage and need a modest amount of capital. It works for a self-employed owner whose tax returns understate real income, who owns the property personally or in a revocable trust, and who has strong credit.

Consider what the network’s investment-property line looks like. The minimum credit score is 700. The ceiling is 70% CLTV, with lines from $25,000 up to $500,000. The structure is a 5-year interest-only draw followed by a 25-year fully amortizing repayment. At least 75% of the line is drawn at closing. Pricing floats through both the draw and repayment periods and never converts to fixed. Lenders qualify the borrower on the interest-only payment calculated on the maximum draw, with a debt-to-income ceiling of 50%.

That last point matters. A line is judged against your total debts, not mainly against the rent. A borrower with a heavy debt load and a strong portfolio can still stall on a line, while someone with few other obligations can clear it easily.

Keeping the first mortgage is the main attraction. If that loan sits among the 78.8% below 6%, a second lien lets you tap equity without touching it. NerdWallet notes that a HELOC does not require you to change your mortgage.

On smaller lines, valuation is lighter too. Lines at or below $500,000 ordinarily run an automated valuation instead of a traditional appraisal, though a higher CLTV may require a second valuation. You can also request a full appraisal in any case.

A line fits poorly if the property is in an LLC. LLCs, corporations, partnerships, and irrevocable, blind, or land trusts cannot hold title under these programs. A property already deeded to an LLC needs a vesting change first, or it needs a DSCR cash-out instead.

Availability is the other limit. These lines are offered in Lendmire’s 16 full-service states, which is narrower than the 41-market DSCR footprint. Property types are also narrower: single-family, 2-4 units, PUDs, townhomes, and condominiums (including non-warrantable condos) are eligible. Manufactured homes, co-ops, condotels, log homes, commercial, mixed-use, and agricultural zoning are not.

If the property is your primary residence and you want to borrow against it, the ceilings are higher. Primary-residence lines reach 90% CLTV, but only at a 720 credit profile, and the cap is lower at lower scores. Second homes follow their own table. This article focuses on rentals, where 70% is the ceiling.

When a Cash-Out Refinance Is the Better Fit

A cash-out refinance is the better fit when you need a large lump sum, want one fixed-term payment, or hold rentals in an entity. It is also the practical route when the rent, not your personal income, should carry the file.

A cash-out refinance replaces your existing mortgage with a larger one and pays you the difference in cash. In Lendmire’s network, a DSCR cash-out on a standard rental tops out around 75% LTV, and about 6 months of seasoning is the common expectation. Seasoning is the waiting period between buying or refinancing a property and doing the next transaction. Short-term-rental collateral drops the cash-out ceiling to 70%. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.

Loan sizes run up to $3,000,000 on standard programs (smaller balances available through select lenders). Above $2,500,000, the network generally holds to 30-year fixed structures. Credit expectations are a 620 floor in parts of the network, around 660 for most programs, and 700 or better for the strongest leverage tiers.

Qualification can run on the property. DSCR cash-out files qualify primarily on property-level rental income covering the payment, subject to lender guidelines. That suits an investor with several rentals and uneven personal income. Entity ownership is workable too: the DSCR side supports LLC-titled borrowers, subject to lender program eligibility. A reader weighing a bank statement version of the same refinance can see that route in Lendmire’s piece on whether a bank statement cash-out works when income is hard to verify.

Coverage thresholds vary by program. Many select programs start at 1.00, and a separate select-lender path takes coverage below 1.00 with leverage and terms adjusted. Stronger ratios open better leverage. Note that clearing 1.00 does not mean the property produces positive cash flow, because repairs, vacancy, management, utilities, and capital expenses sit outside the calculation.

Term structure gives you more choices here as well. The spine is the 30-year fixed. Extended terms such as a 40-year and interest-only periods are available through select lenders, and adjustable structures exist for investors who want them. A cash-out also resets the first mortgage entirely. If yours is among the low ones, that is a real cost, and the next section shows how to weigh it.

What Each Choice Does to Your Rental Coverage

Both options can lower rent coverage, though they do it through different mechanics. A second lien adds a payment on top of the first. A cash-out enlarges the single payment. Which lowers coverage more depends on the amount borrowed and the pricing of each.

Run the numbers this way. These are modeled ratios, not market data. Say a duplex’s rent covers its existing first mortgage at about 1.35x. Adding a second payment might pull combined coverage toward the 1.1x range. If a cash-out raises the single payment by a similar amount, coverage lands in a similar zone. What separates the two outcomes is whether the old first mortgage’s terms were better than a new one.

This matters most when a lender reviews rental coverage for any later loan. The more of the property you borrow against, the thinner the cushion.

Equity shrinks too. A line reduces what remains for later borrowing. A later refinance of the first mortgage would require the second lien to be paid off or subordinated, so the sequence you choose now shapes what is possible later.

Where the Line Carries More Risk

A line carries more payment uncertainty than a fixed-term loan. The Consumer Financial Protection Bureau describes a HELOC as an open-end line that lets you borrow repeatedly against equity. It adds that the draw period could last 10 years, for example, and that a lender may restrict further draws if the home’s value falls significantly.

The same agency also notes that HELOCs usually have adjustable pricing, with payments that vary by balance. When the interest-only draw ends, the payment steps up as the balance begins to amortize. Selling the property also generally requires paying off the line in full.

For the network’s investment line, the 5-year draw is followed by a 25-year repayment. If you plan to hold the property longer than five years, build the step-up into your coverage math from day one.

A cash-out has its own risk: you lock in a new term on the whole balance. That is predictable, but it gives up whatever you had before. It also carries closing costs, which NerdWallet says resemble those of the original mortgage.

Can You Use Both?

Yes, in sequence, and many investors do. A common path is to take a line against an unencumbered or lightly encumbered rental and hold the first mortgage steady. Later, if circumstances change, a cash-out can pay everything off.

A few program limits shape this. A borrower may hold up to three lines. Combined exposure is capped at $2,000,000 on the higher-leverage program and $750,000 on the longer-runway program. An owner with more than 15 financed properties is not eligible for a line. Past those limits, a DSCR cash-out is usually the only route.

If the property was recently improved and the appraisal did not credit the work, valuation drives the choice more than structure does. Lendmire covers that angle in its piece on what to do when the appraisal ignored your rehab.

Lendmire’s complete DSCR loans guide covers how cash-out files are structured from start to finish.

The Verdict

Choose the line when the first mortgage is worth keeping, the amount is modest, you hold title personally or in a revocable trust, and your income and credit can carry a file on their own. The cash-out refinance fits the opposite profile: larger capital needs, a fixed-term payment, LLC title, or a review that leans on the property’s rent.

The lock-in statistic should push you to price what you give up, not to avoid refinancing automatically. A first mortgage that is low relative to the market is an asset, so it deserves a number in your comparison, along with the second payment a line adds. The strongest files clear both tests: enough equity and enough rental coverage.

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 HELOC options based on the property, the equity available, credit profile, combined leverage, and your goals.

A deeper walk-through of investment-property equity extraction lives in Lendmire’s guide to cash-out refinance on an investment property.

About Lendmire

Lendmire, NMLS# 2371349, is a mortgage brokerage that arranges home equity lines of credit through wholesale lending partners in its 16 full-service states. Lines on primary residences, second homes and investment properties are each reviewed individually by the lender under the program’s occupancy, credit and combined-loan-to-value guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.

References

1. 78.8% of homeowners hold a mortgage below 6%

2. NerdWallet: HELOC on an investment property

3. Consumer Financial Protection Bureau

4. CFPB: Home equity loan vs. HELOC