The Quick Read: A cash-out refinance replaces your mortgage, and a home equity loan sits beside it. That one difference drives almost every other choice. A home equity loan fits when your current mortgage has terms worth protecting and you need a lump sum. A cash-out refinance fits when you would be happy to reset the whole loan, or when you want one payment instead of two. Neither is cheaper in every case, and both put your home on the line.
Why “Keeping Your Mortgage” Is the Real Question
Most homeowners comparing these two loans are not really comparing loans. They are deciding whether to touch the mortgage they already have.
Cash-out refinance estimate
The starting figures are an example value with a balance and a cash request in proportion. Replace them with yours.
Editable benchmark: 7.18% as of November 5, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not a cash-out refinance quote.
Illustrative starting assumptions: a $350,000 home value, a $193,000 current balance, the agency cap on a one-unit principal residence, a thirty-year term at the current Freddie Mac benchmark, and property taxes and insurance estimated at typical national rates. Every field is editable.
Illustrative estimate only — not a Loan Estimate, approval, quote, or commitment to lend. The rate field carries the weekly Freddie Mac thirty-year conventional benchmark, a market reference and not a cash-out refinance quote; a cash-out loan is priced by the lender at lock. The cash available is the loan the program cap allows less the balances paid off, before closing costs, which are not included. The HELOC line is the program’s combined loan-to-value ceiling applied to the same value and balance. Taxes and insurance are editable estimates. Licensed in sixteen states for consumer mortgages.
If your current mortgage has a good interest rate, a short remaining term, or a balance you are proud of, a second loan leaves all of that alone. If the mortgage is mediocre anyway, replacing it costs you less in lost value.
So start with your existing loan, not the new one. What are its terms? How long have you had it? Would you buy it again today? Your answers point toward one product or the other before you compare a single fee.
The paperwork follows from that choice. Lendmire’s cash-out refinance programs page lays out the first-mortgage side, including how much equity each program reaches.
Side-by-Side
Figures for the cash-out column come from the wholesale conventional programs Lendmire arranges. The home equity loan column is general, because each second-lien lender sets its own rules. All of it is subject to lender guidelines and full file review.
| Factor | Cash-Out Refinance | Home Equity Loan |
|---|---|---|
| Your current mortgage | Paid off and replaced | Stays in place |
| Monthly payments | One | Two |
| Lien position | New first lien | Second lien |
| Leverage (one-unit primary) | Up to 80% LTV | Set by the second-lien lender |
| Leverage (2–4 units, second home, investment) | Up to 75% LTV | Set by the second-lien lender |
| Credit floor | 620 decision score at the wholesale programs | Set by the second-lien lender |
| Mortgage insurance | Above 80% LTV on the agency path | Typically none |
| Occupancy | Primary, second home or investment | Set by the second-lien lender |
| Documentation | Full new first-mortgage file | Lender’s own review of your file |
| Seasoning | First mortgage 12+ months old; 6 months on title | Varies by lender |
A few notes on that table. LTV means loan-to-value: your loan balance divided by the home’s value. Occupancy sets the leverage on a cash-out. A primary residence gets the highest limit, and second homes and investment properties get a lower one. A cash-out does not require that you live in the home.
The one exception is a wholesale no-mortgage-insurance cash-out lane. It reaches 89.99% LTV at a 680 score and a 50% ratio on a thirty-year fixed, primary residence, conforming-balance loan. It has its own six months of seasoning. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
In Texas, a cash-out on a homestead is capped at 80% of the home’s value by the state constitution, and that wholesale lane is not written there.
How Each One Works
A home equity loan is a second mortgage. The federal consumer-finance regulator describes it as a loan secured by your house while another loan is still secured by it. You get a lump sum up front. The FTC notes that these loans typically carry a fixed APR and are repaid in equal monthly payments over a fixed term. Your first mortgage keeps its own schedule.
A cash-out refinance is a new first mortgage. It pays off the old one, and you keep the difference as cash. The lender underwrites your file from scratch, orders a value, and applies a leverage ceiling based on occupancy and unit count. Freddie Mac’s Guide section on cash-out refinances frames it as a mortgage with no specific restrictions on how you use the proceeds. It also sets a six-month ownership requirement for the property.
The result is one loan, one payment, and one new set of terms on the entire balance.
That last point matters most. A cash-out reprices everything. A home equity loan prices only the new money. The CFPB advises that, depending on the terms, a cash-out refinance may be more or less expensive than a HELOC, a revolving credit line that is also secured by your home. It also says to weigh the new loan’s interest rate against the one on your current mortgage. Neither product wins on cost by default.
When a Cash-Out Refinance Is the Better Fit
A cash-out refinance wins when replacing the first mortgage costs you little or even helps. Four situations come up again and again.
Your current mortgage is not worth protecting. Maybe the terms are average, the balance is small, or you were planning to refinance anyway. In that case, paying for a new first loan buys you something. You get cash and a clean slate in one transaction.
You want one payment. Two payments mean two due dates and two sets of consequences if money gets tight. The CFPB notes that a second mortgage adds to your overall debt burden. A cash-out folds everything into a single loan, which many borrowers find easier to manage.
You need a larger amount of cash. A first-lien cash-out can generally reach further than a second lien, because the first lien gets paid first. Conventional cash-out tops out at 80% LTV on a one-unit primary residence, where mortgage insurance is not the issue. The one exception is a wholesale lane that reaches 89.99% LTV with no mortgage insurance, under the conditions above.
You want predictable terms on a long-term loan. Some borrowers want a fixed rate and a defined term covering the whole debt, not a patchwork. A refinance gives you that, at the cost of restarting the clock on the loan.
Here is a plain-language picture. Say your home is worth 100%, and your balance sits at 40% of that. You want cash equal to 20% of value for a major renovation. A cash-out takes you to 60% LTV, well under the 80% ceiling. You end up with one new first mortgage, and the file is straightforward. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Two clocks can slow this down. The first mortgage you are paying off must be at least 12 months old, counting from note date to note date. And you must have been on title for six months, with exceptions for delayed financing, inheritance and legal awards. Bought last month and want cash next month? That does not meet the seasoning rules.
Pricing also deserves a mention. Fannie Mae’s cash-out guidance applies a loan-level price adjustment to certain cash-out refinances, based on LTV and credit score. Higher leverage and lower scores cost more in the pricing of a cash-out. You will see the result on your Loan Estimate.
When a Home Equity Loan Is the Better Fit
A home equity loan wins when your first mortgage is the asset and the cash is just a side need. It also wins when the first mortgage would be expensive to replace.
Your current mortgage has terms you want to keep. If it carries a favorable interest rate or a short remaining term, a refinance throws that away to fund one project. A second loan prices only the new amount. Your first mortgage keeps going as if nothing happened.
You need a specific lump sum. Home equity loans pay out once, then repay on a fixed schedule. That suits a defined cost like a roof, a tuition bill or a one-time payoff. The FTC notes that many lenders prefer you borrow no more than 80 percent of the equity in your home. Treat that as a starting guide, since lender limits differ.
You are not asking for a lot relative to the home. A smaller second loan on a house with plenty of equity is the classic setup. Your combined borrowing stays modest and the file stays simple.
You plan to pay it off on its own timeline. A separate loan has a separate schedule. You can aim to clear the second loan well before the first mortgage, without disturbing the first.
Here is a second picture, using round numbers for illustration only. Say your balance is a modest share of the home’s value, and you want cash equal to a small slice of that value. A second lien leaves the first loan untouched and puts a smaller balance on its own schedule. Your combined balance would still sit well below the home’s full value, though the second-lien lender sets its own combined limit.
The tradeoff is real, though. The CFPB points out that second liens are paid second if the home is sold to cover debts, so the lender may not be repaid in full. That is why they often carry higher interest rates than first mortgages. Second loans may also carry upfront fees, so compare more than the monthly payment.
One more catch. A second lien can complicate a later refinance. When you refinance the first mortgage, the second-lien lender has to agree to stay behind the new loan, unless you pay the second off in the same transaction. Plan for that if you expect to refinance later.
Two Cases That Blur the Line
You have an FHA or VA loan. Streamlines are for lowering your payment, not for pulling cash. The FHA Streamline needs an existing FHA loan. The VA IRRRL needs an existing VA loan, carries a 0.5% funding fee unless you are exempt, and has seasoning of the later of 210 days and six payments. Neither one takes out equity.
If you want cash on a VA loan, that is a separate product. The VA cash-out loan lets veteran borrowers access cash up to their entire home equity.
Your loan is above the conforming limit. Jumbo loans use their own lanes, with a 660 decision score, leverage to 90% and loans to $5,000,000 on the fixed lanes.
Key Terms Defined
Second mortgage: a loan secured by your home while your first mortgage is still in place. A home equity loan is one.
Lien position: the order in which lenders get repaid if the home is sold to cover debts. The first lien is repaid first.
LTV (loan-to-value): your loan balance divided by the home’s value, shown as a percentage.
Seasoning: a waiting period a lender requires, such as how long you have owned the home or held your current loan.
Limited cash-out refinance: a refinance that pays off your current loan and closing costs, with only small cash back. Fannie Mae’s limited cash-out rules say that adding new subordinate financing alongside a first-mortgage refinance can still be treated as limited cash-out, if the first mortgage qualifies. A second lien by itself does not make a loan cash-out.
The Risks Both Share
Both loans are secured by your home. If you cannot repay either one, the lender could foreclose.
Debt consolidation deserves its own caution. The CFPB warns that using home equity to pay off other debts is really taking out one loan to repay another. Unsecured balances become debts secured by your house. If you are weighing that move, a credit counselor is worth a call first.
Over-borrowing is the other trap. Equity feels like free money because it arrived without effort. It is not. Borrow for something that holds value or solves a real problem.
A Five-Minute Decision Checklist
Run through these in order:
1. Would you take your current mortgage again today? If yes, lean toward a second lien. If no, a cash-out becomes more attractive.
2. How much cash do you need, as a share of your home’s value? Add it to your current balance and compare the total with the leverage limits above.
3. Do you own the home long enough? For a cash-out, the first mortgage must be at least 12 months old and you must have been on title for six months.
4. Is there already a second lien or HELOC? A refinance requires that lender’s agreement, or a payoff at closing.
5. How long will you keep the loan? Costs on a new first mortgage can take time to earn back. A short hold favors the smaller transaction.
6. Can your budget carry two payments? If not, one loan is safer.
Then compare Loan Estimates for the full terms of each, not just the monthly figure. Costs are on the document. Lower payments can hide a longer term.
The Balanced Verdict
Neither product beats the other across the board. They solve different problems.
Choose a home equity loan when your first mortgage is worth protecting and you need a defined lump sum. Accept two payments and a second-lien structure in return. Choose a cash-out refinance when the current mortgage is not worth keeping, when you want one payment, or when you need to reach further on leverage. Accept new first-mortgage costs and a reset on the whole balance.
The honest answer for plenty of borrowers is “it depends on the first mortgage.” That is why you should start there.
If you are weighing a cash-out refinance against keeping the loan you have, Lendmire can help you compare the programs and the equity each one reaches.
Frequently Asked Questions
Does a cash-out refinance keep my current mortgage?
No. It pays off your current mortgage and replaces it with a new first loan. Only a second-lien product, like a home equity loan, leaves the original mortgage in place. If the terms on your current mortgage matter to you, that is the deciding factor.
Which one is cheaper?
It depends on the terms of each loan. A refinance reprices the whole balance, while a second loan prices only the new amount. Compare the full Loan Estimates, including fees and term length.
How much equity do I need?
For a cash-out, conventional programs reach 80% LTV on a one-unit primary residence and 75% on two- to four-unit homes, second homes and investment property, subject to lender guidelines. A home equity loan has limits set by the second-lien lender.
Can I do a cash-out refinance on a home I own outright?
Yes, in many cases. Freddie Mac’s Guide treats a cash-out on a home with no mortgage as eligible, subject to the ownership clock and the lender’s review. You still go through full qualification for a new first mortgage.
What if I already have a second mortgage or HELOC?
The second-lien lender has to agree to stay behind a new first loan, unless you pay the second off with the refinance. That agreement can add a step, so ask early about how your existing second lien would be handled.
For your own numbers, request a scenario review with Lendmire.
For current guidelines and terms, see Lendmire’s refinance programs page.
About Lendmire
Lendmire, NMLS# 2371349, is a mortgage brokerage with consumer lending licenses in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending partners, and each application is reviewed individually by the lender. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. CFPB
2. FTC: Home equity loans and home equity lines of credit
3. Freddie Mac Guide, Section 4301.5
4. CFPB: Similar loans to a HELOC
5. Fannie Mae Selling Guide B2-1.3-03: Cash-Out Refinance Transactions
6. CFPB: Piggyback second mortgage
7. Fannie Mae Selling Guide B2-1.3-02: Limited Cash-Out Refinance Transactions
This article is part of Lendmire’s cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How to Use a Cash-Out Refinance for a Down Payment on the Next Home · How Lenders Underwrite a Cash-Out Refinance That Replaces Your Mortgage With a Larger Loan · How to Qualify for a Cash-Out Refinance on a CPA PL Loan
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
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Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.