The Quick Read: A cash-out refinance replaces your whole first mortgage with a bigger one and hands you the difference. A home equity loan leaves your first mortgage alone and adds a second loan behind it. The first suits you if the current loan is worth replacing. The second suits you if the current loan is worth keeping. Both use the home as collateral, and both are limited by how much of the home’s value ends up borrowed, subject to lender guidelines and full file review.
The Honest Answer, Before the Details
Most homeowners ask the wrong first question. They ask which product is cheaper. The better question is what happens to the mortgage you 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.
A cash-out refinance is a new first mortgage. The new terms apply to the entire balance, not just the cash you pull out. You end up with one payment.
A home equity loan is a second mortgage. Per the FTC, it is secured by your home, and many lenders prefer that you borrow no more than 80 percent of your equity. That is a lender preference, not a federal rule. You keep the first loan untouched and add a second payment.
If you need a large sum and your current first mortgage is no bargain, the cash-out refinance usually deserves the look. If you need a smaller sum and your first mortgage is one you want to keep, the home equity loan usually does. Lendmire is a mortgage broker, so it does not make the decision for you. It arranges the loan, and the lender reviews the file. Lendmire’s cash-out refinance programs page lays out the first-mortgage side of that choice.
Side-by-Side
| Factor | Cash-Out Refinance | Home Equity Loan |
|---|---|---|
| Lien position | New first mortgage | Second mortgage |
| Existing mortgage | Paid off and replaced | Stays in place |
| Payments | One | Two |
| Limit measured by | Loan-to-value (LTV) | Combined LTV (CLTV) |
| Typical leverage cap | 80% one-unit primary; 75% other | Set by each lender |
| Mortgage insurance | Required above 80% LTV on the agency path; the wholesale no-MI cash-out lane is the exception | Not typical |
| Occupancy | Primary, second home or investment | Set by each lender |
| Seasoning | 12 months on old loan; 6 on title | Lender-specific |
| Documentation | Full income, asset and credit review | Full review of a second lien |
Two terms need a plain definition. Loan-to-value (LTV) is the new loan amount divided by the home’s appraised value. Combined loan-to-value (CLTV) adds the first mortgage and the new second loan together before dividing by value.
The cash-out caps in the table come from the conventional programs Lendmire works with: 80% on a one-unit primary residence, and 75% on two- to four-unit primary residences, second homes and investment property. Occupancy sets the leverage. The home equity loan row says “set by each lender” because that product has no single agency ceiling. The cap depends on the lender’s own appetite.
How the Loan-to-Value Math Actually Limits You
Say your home appraises at 100 units of value and your first mortgage is 50. That is 50% LTV today. A cash-out refinance at the 80% cap lets the new first mortgage reach 80, which frees roughly 30 units of cash before costs. A home equity loan is measured differently. The first mortgage (50) plus the second loan must stay under the lender’s combined limit. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
The two ceilings often land in similar territory. What differs is the structure sitting under them.
The appraisal moves everything. A lower appraised value shrinks the cash available under either product. A higher one expands it. Neither product pays you for the value you hoped the home had.
One more reality check on leverage. Borrowing against more of your home leaves less cushion if prices fall. The CFPB notes that if you cannot repay a home equity loan, the lender could foreclose on your home. The same applies to a cash-out refinance, since both put the house on the line.
When a Cash-Out Refinance Is the Better Fit
A cash-out refinance fits when replacing your first mortgage makes sense on its own merits. Think of three situations.
You want one payment and a clean structure. Everything rolls into a single new loan. There is no second lien and no second due date.
Your existing first mortgage is not worth protecting. The new terms apply to the whole balance. That cuts both ways, so the existing loan’s terms matter before you replace it. Pricing is outside this article. The loan’s terms and costs appear on the Loan Estimate and Closing Disclosure, and comparing them is your job and your lender’s.
You need a large sum. A larger amount is usually easier to reach in one loan. The cash-out cap of 80% on a one-unit primary residence sets the outer limit.
There is also a quieter advantage on the mortgage insurance side. Mortgage insurance is a monthly cost that protects the lender when you borrow more than 80% of the home’s value. It is required above 80% LTV on the agency path, with one exception: a wholesale cash-out lane that reaches 89.99% LTV with no mortgage insurance. That lane needs a 680 score, a 50% ratio on a thirty-year fixed, a primary residence and a conforming loan balance. It carries its own six months of seasoning. It is not written in Texas. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Seasoning rules matter as much as the leverage cap. The first mortgage you pay off must be at least 12 months old, counted from the old note date to the new note date. At least one borrower must also have been on title for six months. Fannie Mae’s SEL-2023-01 announcement sets out both tests. Exceptions exist for delayed financing after an all-cash purchase, inheritance and legal awards such as divorce.
A cash-out refinance also carries a pricing adjustment based on LTV and credit score, per Fannie Mae’s Selling Guide. It affects the terms you are offered. The Loan Estimate shows how.
When a Home Equity Loan Is the Better Fit
A home equity loan fits when the first mortgage is the asset and the cash is the add-on.
You want to keep your existing first mortgage. The second loan leaves its terms untouched. If your current first mortgage is one you would not want to replace, this is the cleaner path.
You need a smaller amount. Borrowing a modest sum against a second lien avoids rewriting a large balance.
You can live with two payments. The second loan is paid in addition to your first mortgage. That is the trade for leaving the first loan alone.
You are ready to read the fee page. The CFPB warns that home equity loans may carry upfront fees and costs, so compare more than the monthly payment. The same advice applies to a refinance. Whichever product you pick, the full cost picture lives on the Loan Estimate.
A home equity loan is not a home equity line of credit. The CFPB separates the lump-sum loan from the revolving line, which you draw on as needed. Many lenders offer both, and they behave differently. If you only need cash once, the lump sum is the simpler fit.
The CFPB also says a cash-out refinance may cost more or less than a HELOC, depending on the terms. Nobody can tell you in the abstract which is cheaper. Anyone who does is guessing.
Key Terms Defined
Cash-out refinance: A new first mortgage larger than your current one. It pays off the old loan and gives you the difference in cash.
Home equity loan: A lump-sum second mortgage secured by your home, paid alongside your first mortgage.
Seasoning: The waiting period a lender requires, such as 12 months on the loan being paid off or six months on title.
Limited cash-out (rate-and-term) refinance: A refinance that pays off the old loan and closing costs but returns only incidental cash. It allows higher leverage than a true cash-out.
Mortgage insurance: Coverage on loans above 80% LTV that can be cancelled at 80% of the original value and ends automatically at 78%, under the Homeowners Protection Act.
What Else Decides the Outcome
Leverage is only one gate. Lenders also review these items on both products:
- Credit score. The wholesale conventional programs start at a 620 decision score, and the automated finding governs most files.
- Debt-to-income ratio. The total ratio ceiling is 50% on automated files. Manually underwritten loans use 36% or 45%.
- Reserves. Fannie Mae’s Eligibility Matrix calls for minimum reserves on cash-out refinances when the ratio is above 45% on automated files.
- Occupancy. A cash-out is written on a primary residence, a second home or an investment property, and occupancy sets the leverage.
- Property type. The lender reviews the property type as part of the full file review, and eligibility can differ by type.
In Texas, a cash-out on a homestead is capped at 80% of the home’s value by the state constitution. That is a Section 50(a)(6) loan, and it changes the math for Texas homeowners.
Credit events also matter. The agencies set waiting periods: four years from a chapter 7 discharge, seven from a foreclosure, and four from a short sale or deed-in-lieu. Documented extenuating circumstances can shorten them.
A Word on “No Cash-Out” Refinances
A limited cash-out refinance sounds like it should give you cash. It does not. It pays off the existing first mortgage, the closing costs and any purchase-money second lien, with only incidental cash back. Fannie Mae limits that to the lesser of 2% of the new loan or $2,000. Freddie Mac uses the greater of 1% of the new loan or $2,000.
The payoff is higher leverage: up to 95% LTV on a one-unit primary residence, and 97% where the existing loan is agency-owned and the first-time-buyer program allows. If you want real cash, it is the wrong tool. If you only want to change your loan terms, it often is the right one.
The Verdict
Neither product wins on its own. The cash-out refinance wins when you want to rebuild your first mortgage and take cash in the same move. The home equity loan wins when you would rather leave that mortgage alone.
Use this quick filter:
- Keep the first loan and borrow a modest amount: lean toward a home equity loan.
- Replace the first loan and borrow a large amount: lean toward a cash-out refinance.
- Want higher leverage without cash: ask about a limited cash-out refinance.
- Own a government-backed loan: ask about the FHA Streamline or VA IRRRL, which are streamlines for existing government loans. A VA borrower with a cash-out question can read Lendmire’s piece How a VA Cash-Out Refinance Counts Home Equity and the Value Cap.
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
Can I take cash out any time I want?
No. For a conventional cash-out, the first mortgage you are paying off must be at least 12 months old, measured from note date to note date. Exceptions exist for delayed financing, inheritance and legal awards.
Is the 80% limit a federal rule?
No. For conventional cash-out refinances, 80% on a one-unit primary residence comes from the program guidelines. Texas homestead cash-outs have a separate 80% cap in the state constitution.
Does a cash-out refinance always cost less than a home equity loan?
No. Cost depends on the terms of each loan. A refinance applies new terms to the whole balance, while a home equity loan applies only to the new money. Compare the Loan Estimates side by side.
What happens to my existing second mortgage in a cash-out refinance?
That depends on the loan. A purchase-money second lien can be paid off in a limited cash-out refinance. A second lien that funded something else generally affects the combined balance and the lender’s review, so ask before assuming it disappears.
Do I need mortgage insurance on a cash-out refinance?
Mortgage insurance is required above 80% LTV on the agency path, except in one wholesale cash-out lane that reaches 89.99% LTV without it. Where it applies, it can be cancelled at 80% of the original value and ends automatically at 78%. All figures are subject to lender guidelines.
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 broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. 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. FTC: Home equity loans and HELOCs
2. CFPB
3. Fannie Mae SEL-2023-01 announcement
4. Fannie Mae Selling Guide B2-1.3-03
5. Fannie Mae Eligibility Matrix
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 Lenders Underwrite a Cash-Out Refinance on a Home You Own · How to Meet Seasoning for a Cash-Out Refinance on a Primary Home · How to Replace Your Old Loan With a Cash-Out Refinance
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.