The Quick Read: It depends on what you want to do with the loan you already have. A cash-out refinance replaces your first mortgage with a larger one and hands you the difference. A home equity loan leaves your first mortgage alone and adds a second loan on top. The better fit comes down to how much you need, how much equity you will have left, and whether your current first mortgage is worth keeping.
The Honest Answer First
Here is who each option is really for.
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 suits the homeowner who needs a large sum and is fine resetting the whole mortgage. It also suits someone whose current first mortgage is not worth protecting. You get one payment, one lender, and one set of terms.
A home equity loan suits the homeowner who likes the first mortgage and only needs a defined chunk of cash. You keep the first loan untouched. You also take on a second payment and a second set of closing costs.
Neither is automatically cheaper. The Consumer Financial Protection Bureau says that, depending on the terms, a cash-out refinance may be more or less expensive than a home equity line. Anyone who tells you one always wins is selling something.
This page covers the cash-out side in detail. Lendmire’s cash-out refinance programs page lays out the first-mortgage route if you want to see the lanes before reading on.
Side-by-Side
| Factor | Cash-Out Refinance | Home Equity Loan |
|---|---|---|
| What it is | New first mortgage replaces the old one | New second mortgage added on top |
| Number of payments | One | Two |
| Your current first mortgage | Paid off and gone | Stays in place, unchanged |
| Leverage (conventional) | 80% LTV on a one-unit primary home | Set by each lender, often with equity left over |
| Credit floor | Wholesale programs start at a 620 score | Set by each lender |
| Mortgage insurance | Generally none at 80% LTV or below | Not typical |
| Occupancy | Primary, second home or investment | Set by each lender |
| Documentation | Full income, asset and credit review | Varies by lender |
| Seasoning | Existing first mortgage at least 12 months old | Depends on remaining equity |
Leverage and credit figures for the cash-out column reflect the wholesale conventional programs Lendmire works with and are subject to lender guidelines and full file review. The home equity column is deliberately general, because second-mortgage limits belong to each individual lender.
LTV means loan-to-value: your loan balance divided by what the home is worth. It is the number that decides how much cash you can actually pull out.
How a Cash-Out Refinance Works
Think of it as a reset. The new loan pays off your old first mortgage. Whatever is left after payoff and closing costs comes to you as cash.
On a one-unit primary residence, the conventional programs Lendmire arranges through wholesale lenders cap the new loan at 80% of the home’s appraised value. Two- to four-unit homes, second homes and investment properties cap at 75%. Occupancy sets the leverage, so a primary home gets the most room.
Two seasoning tests apply. The first mortgage you are paying off must be at least 12 months old, measured from its note date to the new note date. And you generally need to have been on title for six months, with exceptions for delayed financing, inheritance and legal awards. Fannie Mae’s Selling Guide spells out the 12-month rule and notes that taking equity out for any purpose counts as cash-out.
Cash-out loans also carry cash-out pricing. That is simply how the agencies treat the product. It is one reason the whole-loan comparison matters.
One more wholesale option exists for some borrowers. A lane reaches 89.99% LTV with no mortgage insurance at a 680 score and a 50% total debt ratio. It must be a thirty-year fixed on a primary residence with a conforming balance, and it carries its own six months of seasoning. It is the exception to the usual rule that mortgage insurance applies above 80%. It is not written in Texas. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Credit and ratios matter too. The wholesale conventional programs start at a 620 decision score. The automated finding governs most files, with a total ratio ceiling of 50%. Manually underwritten loans run tighter at 36% or 45%.
How a Home Equity Loan Works
A home equity loan is a second mortgage. According to the CFPB, it gives you a lump sum, usually at a fixed rate, and it may carry upfront fees and costs. Compare more than the monthly payment.
Your first mortgage stays exactly as it is. The new loan sits behind it. The CFPB explains that “second” means it gets paid second if the home is sold to cover debts, which is why second mortgages often cost more than first mortgages.
Lenders also want you to keep some equity untouched. The FTC notes that many lenders prefer you borrow no more than 80 percent of your equity. Note the wording. That is 80 percent of your equity, not 80 percent of your home’s value.
Both loans put the house on the line. If you can’t repay either one, you could lose the home.
When a Cash-Out Refinance Is the Better Fit
Your current first mortgage is not worth keeping. If you are already unhappy with its terms, replacing it costs you nothing you would have wanted to protect. Folding the renovation cash into a new first loan is clean.
The project is large. A major renovation can be a big chunk of your home’s value. A cash-out loan sizes against the whole home, up to the leverage cap, which can reach more equity than a second lien allows.
You want one payment. Two loans mean two due dates, two servicers and two sets of paperwork. One loan simplifies the monthly budget.
You have been in the home long enough to season the loan. The 12-month and six-month tests are real. If your first mortgage is older than a year and you have held title past six months, you are past the gate.
You want to clean up a second lien. Paying off a non-purchase second mortgage during a refinance turns the transaction into a cash-out. Verify that treatment with the lender, since it depends on how the lien is classified.
The trade-off is plain. A cash-out refinance resets the terms on your entire balance, not just the new money. That is a structural fact, not a price claim. If your existing loan is a keeper, resetting all of it to fund one project is a real cost.
If your home is already paid off, a different comparison applies.
When a Home Equity Loan Is the Better Fit
Your first mortgage is worth protecting. This is the strongest case. If your existing loan has terms you would struggle to match today, leaving it alone is the point. A second mortgage borrows only the new money.
The project is modest relative to your equity. You need a defined sum, not a deep draw on the whole home. A second loan can cover that without touching the first.
You are inside the seasoning window. If your first mortgage is under 12 months old, a cash-out refinance is off the table for now. A second lien is not subject to that test in the same way.
You can handle two payments. The CFPB is direct that a home equity loan’s payment comes in addition to your first mortgage. Run your budget with both on it.
The trade-offs here are also plain. Second mortgages often carry higher costs than first mortgages. And a second lien can complicate a later refinance, because the second lender must agree to it unless the new loan pays the second off. The CFPB’s piggyback mortgage page covers that point.
For Texas homeowners, the state adds its own limits on borrowing against a homestead.
What Is Different About Funding a Renovation
Renovation money behaves differently from other cash-out money. Four things come up in real files.
Size the loan to the project, plus a cushion. Renovations run over. Whatever you borrow, build in contingency before you pick a number. Borrowing exactly the contractor’s quote leaves you stuck at the first change order.
Both products pay out as a lump sum. You receive the money at closing, not in draws as work gets done. That is fine if you manage cash carefully. If you want funds released in stages, a line of credit or a dedicated renovation loan is a different product with different rules. Fannie Mae’s guide lists its HomeStyle Refresh product as ineligible under standard cash-out, so a renovation program is a separate category.
Limited cash-out is not a renovation tool. A rate-and-term (limited cash-out) refinance allows only incidental cash back. At Fannie Mae the cap is the lesser of 2% of the new loan amount or $2,000, while at Freddie Mac it is the greater of 1% of the new loan amount or $2,000. That is closing-cost money, not renovation money.
Streamlines will not fund a project either. The FHA Streamline and the VA IRRRL exist for borrowers with an existing FHA or VA loan. They are rate-reduction refinances built around a net tangible benefit. They are not designed to deliver cash.
A quick word on FHA and VA. FHA cash-out is lower leverage than people expect. A HUD transmittal in Handbook 4000.1 lowered the maximum LTV and combined LTV on FHA cash-out refinances to 80 percent, and FHA also requires a period of ownership and occupancy as a principal residence. VA cash-out is a separate program with more flexible leverage for eligible borrowers, though lenders may set tighter limits of their own. Confirm current terms before relying on either.
Which Fits Which Situation
Walk through it in this order.
1. Is your first mortgage worth keeping? If yes, lean toward a home equity loan. If no, a cash-out refinance moves up.
2. Is your first mortgage at least 12 months old? If not, the cash-out refinance is blocked for now.
3. How big is the project against your equity? Larger projects fit a cash-out refinance better. Smaller ones fit a second lien.
4. Can your budget carry two payments? If not, one larger payment is easier to manage.
5. How long will you stay? Closing costs on either option need time to pay for themselves. A short stay favors the smaller, simpler loan.
If your answers split, add up the total cost of each path over the time you plan to stay. Put the old first mortgage plus the new second on one side. Put the single new loan on the other. Compare the full Loan Estimate for each, not just the monthly payment.
Mortgage Insurance and What It Means Here
A cash-out refinance at 80% LTV or below generally has no mortgage insurance. Above 80%, mortgage insurance is required on the agency path, with the wholesale no-MI lane described above as the exception. You may ask to cancel it at 80% of the original value with good payment history, no subordinate liens and no drop in value. Federal law on homeowner mortgage insurance cancellation requires the servicer to end it automatically at 78%.
Lendmire’s conventional program sheet lists typical annual premiums of 0.58% to 1.86% of the balance. That is the program sheet’s range, not a quote, and your own premium would depend on your file.
For a renovation, this matters because borrowing a lot against a thin equity cushion can push you above 80%.
Tax and Documentation
Keep contractor invoices and records of how the money was spent.
Common Mistakes
- Assuming one option is always cheaper. The CFPB says it depends on the terms.
- Forgetting the second payment. A home equity loan adds a payment. Budget for both.
- Treating limited cash-out as renovation money. It only allows incidental cash back.
- Borrowing exactly the quote. Leave room for overruns.
- Ignoring what resets. A cash-out refinance reprices your whole balance.
- Overlooking a second lien’s effect on a future refinance. The second lender has to agree to it.
Balanced Verdict
Neither option wins on its own. The deciding question is not which product is better. It is whether the loan you already have is worth keeping.
If it is, a home equity loan protects it and borrows only what you need, at the cost of a second payment. If it is not, a cash-out refinance gives you one clean loan and typically more reach against your equity, at the cost of resetting everything.
Run both on a full Loan Estimate before you decide. All program figures here are subject to lender guidelines and full file review, and nothing on this page is a commitment to lend.
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.
Key Terms Defined
LTV (loan-to-value): Your loan balance divided by your home’s appraised value.
Seasoning: The minimum age of your existing loan or time on title before a lender will allow a cash-out refinance.
Lien: A legal claim on your home that secures a loan. A first lien gets paid before a second.
Limited cash-out refinance: A refinance that pays off your loan and closing costs and returns only a small, capped amount of cash.
Delayed financing: An exception that lets someone who bought with cash take a cash-out loan sooner, limited to the documented initial investment plus certain costs.
Frequently Asked Questions
Can I use a cash-out refinance for a renovation?
Yes. A cash-out refinance can be used for any purpose, including a renovation. You need at least 12 months on the existing first mortgage and generally six months on title, subject to lender guidelines and full file review.
Do I pay one payment or two?
A cash-out refinance gives you one payment on a larger balance, because the old first mortgage is paid off. A home equity loan gives you two, because it is a separate second mortgage added to your first.
Is a home equity loan always cheaper than a cash-out refinance?
No. Compare the total cost of each path on a full Loan Estimate.
Can a limited cash-out refinance fund my project?
No. It allows only incidental cash back. Fannie Mae caps it at the lesser of 2% of the new loan or $2,000, and Freddie Mac at the greater of 1% of the new loan or $2,000. That covers closing costs, not construction.
What happens if I need to refinance later with a second mortgage in place?
The second lender has to agree to the new first mortgage, unless the refinance pays the second off. That can add a step, so factor it into your plan.
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 that arranges FHA, VA, conventional and jumbo home purchase and refinance financing in 16 states through wholesale lenders. Every option is subject to the lender’s guidelines and full underwriting. 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: Similar loans to a HELOC
2. Fannie Mae Selling Guide B2-1.3-03: Cash-Out Refinance Transactions
3. CFPB: What Is a Home Equity Loan
4. FTC: Home Equity Loans and Home Equity Lines of Credit
5. CFPB: Difference between home equity loan and HELOC
6. CFPB: Piggyback second mortgage
7. HUD Handbook 4000.1 (2019 transmittal)
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 Fund a Down Payment With a Cash-Out Refinance Before You List · 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
- 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
Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.