The Quick Read: It depends on how much cash you need and what your current mortgage is worth keeping. A cash-out refinance replaces your first mortgage, so its costs apply to the whole new balance. A home equity loan sits behind your first mortgage, so its costs hit only the amount you borrow. The right comparison is the cash you actually receive after costs, not the headline loan amount.
The Honest Answer First
A cash-out refinance is for the homeowner who wants one new first mortgage and has a current loan worth replacing, or who needs a large sum. A home equity loan is for the homeowner who likes the mortgage they have and needs a defined amount without touching it.
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.
Neither is “better.” Each one moves closing costs to a different place. On a cash-out refinance, costs are either deducted from your proceeds or added to the new balance. On a home equity loan, costs reduce the lump sum or come out of your pocket, but the first mortgage stays untouched.
Here is the catch most people miss. The loan amount on the page is not the check you receive. Net cash is the new loan, minus the payoff of your old mortgage, minus any costs paid from proceeds. Two loans with the same headline number can leave you with very different cash.
Side-by-Side
| Factor | Cash-Out Refinance | Home Equity Loan |
|---|---|---|
| Lien position | New first mortgage | Second mortgage behind your first |
| Your existing mortgage | Paid off and replaced | Stays in place |
| Payments | One payment, larger balance | Two payments |
| Typical conventional leverage | 80% LTV on a one-unit primary home | Set by the second-lien lender |
| Mortgage insurance | Not required at or below 80% LTV | Varies by lender |
| Seasoning | Existing first mortgage at least 12 months old; 6 months on title | Varies by lender |
| Occupancy | Primary, second home or investment property; occupancy sets leverage | Varies by lender |
| Documentation | Full file review, appraisal | Varies by lender |
| Where costs land | On the whole new balance | On the second loan only |
Two notes on the table. LTV means loan-to-value, the loan balance as a percentage of your home’s appraised value. And the cash-out column describes conventional loans (loans following Fannie Mae and similar secondary-market rules) on a one-unit primary home, where the limit is 80% LTV. A two- to four-unit home, a second home or an investment property is limited to 75% LTV. In Texas, a cash-out on a homestead is capped at 80% of the home’s value by the state constitution. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Across the wholesale programs Lendmire places consumer files with, a cash-out refinance on a conventional loan generally starts at a 620 decision score, subject to lender guidelines and full file review. One wholesale lane reaches 89.99% LTV with no mortgage insurance at a 680 score and a 50% ratio on a thirty-year fixed, primary residence, conforming balance. That lane is the one exception to the 80% rule, and it has its own six months of seasoning, separate from the 12-month age requirement on the existing first mortgage that applies to the standard conventional cash-out. It is not written in Texas.
How Closing Costs Shrink Your Check
Cash-out refinance costs apply to the whole new loan, not just the cash you pull out. Even if you only want a modest sum, the new loan covers the payoff of your existing mortgage plus your cash plus costs, and the fees are tied to that full balance.
Here is the waterfall, in plain order:
1. The lender sets the new loan amount, capped by appraised value times the program’s LTV limit.
2. The old mortgage is paid off first.
3. Closing costs come next, either paid from the proceeds or financed into the balance.
4. What remains is your net cash.
If costs come out of proceeds, your check is smaller. If they are financed into the loan, your check holds up but your balance rises and you pay interest on those costs for as long as you keep the loan. Neither is free. Costs built into the balance are still costs.
Your Loan Estimate shows this. The “Calculating Cash to Close” table includes a line for closing costs financed from your loan amount, and the CFPB’s guide to the Loan Estimate and Closing Disclosure explains that the Closing Disclosure must reach you three business days before closing. “Cash to close” is also a different number from total closing costs. On a refinance, the final line can be money coming to you or money you must bring.
A home equity loan works differently. Your first mortgage stays put, so none of its balance carries new fees. The second loan has its own separate costs, and those reduce its own proceeds. Some lenders waive some of those fees, but that is lender-specific. Read any “no cost” offer closely, and check the Loan Estimate to see where the costs landed.
Gross-Up: Borrowing Enough to Net What You Need
Say you need a specific amount in hand. With a cash-out refinance paying costs from proceeds, you must borrow more than you need. The extra covers costs, so the new loan must be your payoff, plus your target, plus the costs.
Here is the practical sequence:
- Start with the cash you need.
- Add the payoff of your current mortgage.
- Add the estimated costs from your Loan Estimate.
- Check the total against the LTV cap on your appraised value.
If the total exceeds the cap, the gap comes from somewhere. You borrow less, you pay some costs at closing out of pocket, or you choose a different product. Appraised value is the variable that surprises people most. A lower appraisal shrinks the maximum loan, and net cash shrinks with it.
For a home equity loan, the gross-up is simpler. You borrow your target plus its costs, or pay those costs separately. Your first mortgage payoff is not in the math at all.
When a Cash-Out Refinance Is the Better Fit
A cash-out refinance fits best in three situations.
You want to replace your current mortgage anyway. If your first mortgage no longer suits you, say because you want to change the term or leave an adjustable loan, you have a reason to refinance beyond the cash. The costs buy you a new loan and cash together. Lendmire’s cash-out refinance programs page lays out the conventional lanes and the equity each one reaches.
You need a large amount. When the sum is big, one first mortgage is often simpler than a second lien, and first-lien leverage can reach further. A larger need also spreads the fixed part of the costs across more cash.
You want one payment. A cash-out refinance keeps a single monthly payment. It is a larger payment on a larger balance, and VA News notes that adding cash out raises the loan amount and the interest paid over the life of the loan. One payment is simpler. It is not cheaper by default.
Watch the eligibility rules. For a conventional cash-out refinance, the first mortgage you are paying off must be at least 12 months old, measured note date to note date. At least one borrower must also have been on title for six months. Fannie Mae’s seasoning announcement sets out these rules, and exceptions exist for delayed financing, inheritance and legal awards.
Occupancy sets the leverage. A cash-out can be written on a primary home, a second home or an investment property, and the limits differ by occupancy. Veterans have another route: a VA cash-out requires a Certificate of Eligibility and that you live in the home, and the lender orders an appraisal.
When a Home Equity Loan Is the Better Fit
A home equity loan fits when your first mortgage is the best part of your financial picture.
You are keeping a mortgage you like. If your existing loan has a term or structure you would not want to lose, a refinance would swap it for a new one. A second loan leaves it alone. You take on a second, separate payment, which the CFPB describes as a second mortgage with its own payment.
You need a smaller amount. Refinance costs apply to the entire balance. When you need a small sum against a large first mortgage, paying fees on everything can cost more than paying fees on only the second loan. This is the point where the choice often flips.
You may move soon. The shorter you plan to hold the loan, the harder it is to earn back refinance costs. Think of break-even this way: compare what the refinance costs against what it saves or provides compared with the second loan, then ask whether you will hold the loan long enough. A short stay favors the cheaper-to-open option.
Your existing mortgage is an agency-backed government loan. The FHA Streamline and VA IRRRL are rate-and-term tools, not cash tools. HUD’s streamline lets you take no more than $500 in cash and does not allow financing closing costs into the new loan. The VA IRRRL is only for existing VA loans. If you hold one of those and want cash, you need a different product, and a home equity loan can be the way to keep your government loan intact.
Do not skip the risk. A home equity loan is secured by your house. The CFPB warns that if you cannot repay, you could lose your home. A cash-out refinance carries the same risk, so treat the second lien with equal respect.
Edge Cases That Change the Answer
You already have a second lien or HELOC. A HELOC is a home equity line of credit, a revolving second mortgage. If you want to refinance your first mortgage and pay off a HELOC in the same transaction, the lender may classify the deal as a full cash-out rather than a rate-and-term. That changes the leverage and pricing treatment. Ask how your lender will classify it before you apply.
Your equity cushion is thin. Many lenders prefer that you borrow no more than 80 percent of your equity. That is a general lender preference, not a program rule, but it is a good gut check against over-borrowing.
You own the home free and clear. A new mortgage on a home with no existing loan is generally treated as a cash-out refinance. A renovation loan is the main exception.
You want to consolidate debt. Using home equity to pay off other debts is not really paying them off. It is taking out one loan to repay another, and the debt now sits against your home. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
What About a Rate-and-Term Refinance?
If you do not need cash, a refinance (also called limited cash-out) pays off the existing first mortgage and closing costs with only incidental cash back. Conventional rules allow up to 95% LTV on a one-unit primary home, and 97% where the existing loan is agency-owned and a first-time-buyer program allows. Mortgage insurance applies above 80% LTV and cancels at 80% on request and ends automatically at 78% under the Homeowners Protection Act, with the no-insurance wholesale lane above as the one exception. Figures depend on lender guidelines and full file review.
A Practical Checklist Before You Decide
Use your Loan Estimate to compare, not a headline number. Then work through these:
- What is my net cash after payoff and costs on each option?
- Are costs paid from proceeds or financed into the balance?
- How much will I owe in total if I hold the loan for as long as I expect to?
- Am I giving up a first mortgage I would rather keep?
- What happens if my appraisal comes in low?
If your Closing Disclosure shows significant changes in costs, the CFPB advises you to ask your lender to explain why. For a related walkthrough, see Lendmire’s piece How Closing Costs Reduce a Cash-Out Refinance Payout on a Primary Home.
Key Terms Defined
Net cash proceeds: The money you actually receive after the old mortgage is paid off and closing costs are taken out.
Home equity: Your home’s current value minus what you owe on it.
Second mortgage: A loan secured by your home while another loan is still secured by it, paid second if the house is sold.
Seasoning: A waiting period a lender requires, such as owning the home or holding the existing loan for a minimum time.
LTV (loan-to-value): The loan balance as a percentage of your home’s appraised value.
Financed closing costs: Costs added to your new loan balance instead of paid up front.
The Balanced Verdict
Choose a cash-out refinance when you want to replace your mortgage anyway, need a large sum, or want one payment. Choose a home equity loan when you want to keep your first mortgage, need less, or expect to move before refinance costs pay back. For middle-ground amounts, run both through a Loan Estimate and compare net cash and total cost over the time you will actually hold the loan. The payment alone will not tell you.
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. Lendmire is a mortgage broker, and every program detail is subject to lender guidelines and full file review.
Frequently Asked Questions
Do closing costs come out of my cash-out refinance check?
Yes, they can come out of it. Costs are either paid from your proceeds, which shrinks your check, or financed into the new balance, which raises what you owe. Your Loan Estimate shows which one applies in its cash-to-close section.
Does a home equity loan have closing costs?
Often yes. Some lenders waive certain fees, but that varies by lender, so treat a “no cost” claim as a description of how costs are packaged, not their absence.
Which one is cheaper for a small amount of cash?
Often the home equity loan, because refinance costs attach to the whole new balance while second-loan costs attach only to the amount you borrow. It is not automatic. Compare net cash and total cost over your expected holding period.
Can I get cash from an FHA Streamline?
Only a small amount. HUD caps cash at $500 on a Streamline and does not allow closing costs to be financed into it. An FHA borrower who wants real cash needs a different product.
Do I have to live in the home to do a cash-out refinance?
Not for a conventional cash-out. It can be written on a primary home, a second home or an investment property, and occupancy sets the leverage. A VA cash-out does require that you live in the home.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
As a mortgage broker (NMLS# 2371349), Lendmire helps homeowners and home buyers in 16 states with FHA, VA, conventional and jumbo purchase and refinance loans arranged through wholesale lenders. Lendmire is never the lender; program terms are set by the lender and the agency 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. CFPB – Loan Estimate and Closing Disclosure guide
3. Fannie Mae SEL-2023-01 announcement
4. CFPB: What Is a Second Mortgage Loan or Junior Lien
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 Qualify for a Cash-Out Refinance on a CPA PL Loan · How to Qualify and Apply for a Cash-Out Refinance With Closing Costs Rolled In · How to Compare Cash-Out Refinance Costs to a Plain Refinance
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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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.