The Quick Read: It depends on what happens to the loan you already have. A cash-out refinance replaces your first mortgage with a larger one, and closing costs can be built into that new balance. A home equity loan is a second mortgage that sits behind your first loan, and whether a lender will fold costs into it varies by lender. The cash-out route fits a borrower who wants one payment and is willing to reset the whole first mortgage. The second-lien route fits a borrower who wants to keep the current first mortgage as it is.
Two details sharpen that answer. If your current first mortgage has terms worth keeping and you need a defined amount of money, a second loan leaves that mortgage alone. Rolling closing costs in changes the math on both routes, yet it never makes costs disappear. The costs get repaid through a bigger balance, or through pricing that is built into the loan.
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.
Lendmire’s cash-out refinance programs page lays out the first-mortgage side of this choice. Lendmire is a mortgage broker, so it arranges these loans through wholesale lenders and does not lend directly. Every figure below is subject to lender guidelines and full file review, and nothing here is a commitment to lend.
Side-by-Side
| Factor | Cash-out refinance | Home equity loan |
|---|---|---|
| What it does | Replaces your first mortgage | Adds a second mortgage |
| Number of payments | One | Two (first plus second) |
| Leverage (conventional) | 80% LTV on a one-unit primary home | Set by each lender; many prefer you keep a cushion |
| Credit floor | Wholesale conventional programs start at a 620 decision score | Lender-specific |
| Mortgage insurance | Required above 80% LTV, except the wholesale no-MI lane | Generally not tied to the first-mortgage rules |
| Occupancy | Primary, second home or investment, which sets leverage | Lender-specific |
| Documentation | Full new first-mortgage file with appraisal | Valuation of equity plus income and credit review |
| Rolling in costs | Allowed by the agencies, reduces room under the LTV cap | Lender-specific; some allow it, others want payment at closing |
Two notes on that table. First, a cash-out refinance on a one-unit primary home tops out at 80% LTV, while two- to four-unit homes, second homes and investment properties cap at 75%. Occupancy sets the leverage; it does not block the loan. Second, in Texas a cash-out on a homestead is capped at 80% of the home’s value by the state constitution. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
What “Rolling In” Actually Does
Financing closing costs means the new loan amount covers them instead of you paying cash at the table. Freddie Mac says closing costs, financing costs and prepaids and escrows can be rolled into a cash-out refinance. That is the rule at the agency level. It does not mean every lender or every file works the same way.
Three things happen when costs go into the balance.
1. The balance is larger, so you pay interest on the costs for as long as you hold the loan.
2. The costs use up room under the LTV cap. On a one-unit primary home at 80% LTV, every dollar of financed cost is a dollar of cash you do not receive.
3. A “no closing cost” offer is not free. The costs move into the rate or the balance. HUD describes this directly for streamline refinances: some lenders offer “no cost” loans by charging a higher interest rate that funds the closing costs. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
The third point deserves a second look. When a quote looks light on upfront costs, the cost went somewhere. Ask where.
When a Cash-Out Refinance Is the Better Fit
Choose the cash-out refinance when the first mortgage is the problem, or when you want a single loan. Four situations point that way.
You want to replace the first mortgage anyway. If the current loan has a term or structure you no longer want, a second lien leaves you carrying both. A cash-out refinance fixes the first mortgage and pulls equity in one transaction.
You want one payment. A home equity loan means a separate second payment alongside the first, according to the CFPB. One loan is simpler to track.
You need a larger amount. Cash-out leverage reaches 80% LTV on a one-unit primary home. Second-lien lenders set their own limits. The FTC notes that many lenders prefer you borrow no more than 80 percent of your equity, which is a lender preference, not a rule. For larger needs, the first-mortgage route often reaches more.
You can meet seasoning. The first mortgage being paid off must be at least 12 months old, measured note date to note date. A borrower on title must also have held the home for 6 months, with exceptions for delayed financing, inheritance and legal awards.
There is also a wholesale lane worth knowing about. Across the wholesale programs Lendmire places files with, one lane reaches 89.99% LTV with no mortgage insurance. It requires a 680 score, a 50% ratio, a thirty-year fixed, a primary residence, a conforming balance, and its own six months of seasoning. It is the single exception to the rule that mortgage insurance applies above 80%. It is not written in Texas. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
On mortgage insurance in general: above 80% LTV on the agency path, it is required, apart from that no-MI lane. 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. You may request cancellation at 80% of the original value with good payment history, no subordinate liens and no decline in value, and the servicer must end it automatically at 78%. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
A cash-out loan also carries a cost beyond the closing table: risk-based pricing built into the loan itself. Rolling closing costs in does not remove that pricing.
When a Home Equity Loan Is the Better Fit
Choose the home equity loan when the first mortgage is worth protecting and the cash need is bounded. The CFPB defines a second mortgage as a loan secured by your house while another loan is already secured by it. Home equity loans and HELOCs are the common examples.
Your first mortgage is worth keeping. A refinance replaces that loan outright. A second lien does not touch it. If the existing first mortgage has terms you cannot match today, a second loan keeps it intact.
You need a defined lump sum. Per the CFPB, a home equity loan typically pays out as a lump sum, usually at a fixed rate. That suits a one-time need.
You expect to sell or refinance soon. A shorter stay makes upfront costs harder to recover. A smaller second-lien transaction can carry lighter costs, though no neutral source gives a universal figure and fees vary by lender. Do not assume a home equity loan always costs less to close. Nothing supports “always.”
You can pay costs at the table. Whether a lender will add costs to a home equity loan balance is lender-specific. Some allow it. Others require payment at closing. Ask early, because it changes how much cash you net.
Here is the catch with a second lien. Because second liens are paid off second in a sale, they often carry higher rates than first mortgages, per the CFPB. And the CFPB also warns that home equity loans may carry upfront fees, so compare more than the monthly payment.
The Hybrid Case: Both at Once
Some borrowers want to refinance the first mortgage and also add new subordinate financing. Agency guidelines generally treat new subordinate financing taken together with a first-mortgage refinance as a limited cash-out refinance, provided the first mortgage meets the limited cash-out criteria and the subordinate-financing rules are met.
Classification here turns on what gets paid off, not only on what you receive. Paying off a second lien that was used to buy the property is an acceptable use under limited cash-out, and the lender must document that the whole amount went to the purchase. Paying off a second lien that was not used to buy the property generally pushes the file into full cash-out.
That matters for pricing. On a limited cash-out (rate-and-term) refinance, the new loan pays off the first mortgage, the closing costs and a purchase-money second, with only incidental cash back. Fannie Mae allows the lesser of 2% of the new loan amount or $2,000. Limited cash-out reaches 95% LTV on a one-unit primary home, while a conventional full cash-out on that property is written at 80% LTV. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
The Break-Even Test
No neutral source gives a universal break-even rule, so use a framework instead. Ask three questions.
1. How long will I keep this loan? A short hold leaves little time to recover the costs, financed or not.
2. What does the new first mortgage replace? If you give up a mortgage with terms you like, the true cost includes what you lose.
3. What do I owe afterward, in total? Add the new balance, any second lien and the financed costs. Compare that to your equity.
Financing costs raises the balance, so you pay interest on the costs for the life of the loan. That is the trade for keeping cash in your pocket today. If you plan to hold the loan for many years, the financed costs compound into a real number. If you plan to sell in a few years, the larger balance matters less than the upfront cash you saved, though you also have less time to recover the costs.
Put the two options side by side in plain terms. For a cash-out refinance with costs rolled in, the new loan pays off the old one, covers the costs and hands you the rest. The costs eat into your cash and raise your balance. For a home equity loan with costs rolled in, the first mortgage stays and the second loan is larger by the cost amount. The costs raise the second balance, which often carries higher pricing than a first mortgage.
What Rolling In Does to Eligibility
Financed costs use up usable equity. Under an LTV cap, every cost you add reduces the cash you can take. On a one-unit primary home at 80% LTV, a cost that gets financed lowers your net proceeds one for one. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
For a second lien, the limit is a combined one: the first mortgage plus the new loan against the home’s value. Financing costs into the second loan increases that combined figure. A borrower close to a lender’s preferred ceiling may find the costs push the file over. In that case, paying costs at closing keeps the file inside the limit.
Credit matters on both sides. Wholesale conventional programs start at a 620 decision score, and 640 on an adjustable rate under manual underwriting. The automated finding governs most files, with a total ratio ceiling of 50%. Manually underwritten loans run to 36% or 45% depending on reserves and score factors. Waiting periods after credit events are agency rules: four years from a chapter 7 discharge, seven from a foreclosure, four from a short sale or deed-in-lieu, shorter with documented extenuating circumstances. A second-lien lender may set its own floor, and some set a higher one.
Where Financed Costs Do Not Apply
Not every refinance lets you finance costs. If you have an FHA loan and are considering a streamline, HUD says FHA does not allow closing costs in the new streamline mortgage amount. The loan being refinanced must be FHA-insured and current, the refinance must produce a net tangible benefit, and cash above $500 may not be taken out. An FHA streamline is a rate-reduction tool, not a cash-out product. If you need cash, that is a different program.
VA streamlines (the IRRRL) work differently, and they carry their own funding fee and seasoning rules. They are also not cash-out products. If you hold an existing VA loan and need cash, ask about the VA’s cash-out options instead, and confirm the details on VA.gov.
Common Mistakes
Treating “rolled in” as “free.” The costs are still paid, through a larger balance or through pricing.
Assuming every refinance can finance costs. The FHA streamline cannot. Rules differ by program.
Calling a home equity loan a refinance. It is a separate, additional mortgage.
Using equity to clear other debt and thinking the debt is gone. The CFPB says you are taking out one loan to repay another, and your home becomes the collateral.
Forgetting classification. Paying off a non-purchase second lien can turn a limited cash-out into a full cash-out, which changes leverage and pricing.
Ignoring seasoning. The 12-month rule on the loan being paid off can block a cash-out refinance on a recent purchase.
Key Terms Defined
Cash-out refinance: A new first mortgage that pays off the old one and gives you the difference in cash.
Home equity loan: A second mortgage with its own payment, usually a lump sum.
LTV (loan-to-value): The loan balance divided by the home’s value.
Limited cash-out (rate-and-term) refinance: A refinance that pays off the first mortgage, costs and a purchase-money second, with only incidental cash back.
Seasoning: The minimum time you have held the loan or the property before a cash-out is allowed.
Subordinate financing: A loan secured by the home that ranks behind the first mortgage.
A Balanced Verdict
Neither product wins on its own. The cash-out refinance fits the borrower who wants to reset the first mortgage and carry one payment. The home equity loan fits the borrower who wants to keep the first mortgage and borrow a set amount. Rolling closing costs in helps your cash today and costs you interest later, on either product. The right choice follows from your current mortgage terms, the cash you need, how long you will stay and how much equity you want to leave untouched.
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 roll closing costs into both a cash-out refinance and a home equity loan?
Freddie Mac confirms closing costs can be rolled into a cash-out refinance. For a home equity loan, it depends on the lender. Some add costs to the balance and others require payment at closing, so ask before you apply.
Does rolling in closing costs reduce the cash I receive?
Yes, on a cash-out refinance, because costs use room under the LTV cap. On a one-unit primary home at 80% LTV, financed costs lower your net proceeds. On a second lien, financed costs raise the balance and the combined-LTV figure. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Is a home equity loan always cheaper to close than a cash-out refinance?
No. A second loan is a smaller transaction, but fees vary by lender, and no neutral source supports “always.” Compare the full costs of each option and what each does to your total balance.
Does a cash-out refinance require me to live in the home?
No. Occupancy sets the leverage. A conventional cash-out reaches 80% LTV on a one-unit primary home and 75% on two- to four-unit homes, second homes and investment property. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
What if I only want a small amount of cash back?
A limited cash-out (rate-and-term) refinance may fit. It pays off the first mortgage, costs and a purchase-money second, with only incidental cash back. Fannie Mae and Freddie Mac set different cash-back limits, 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. Freddie Mac – Cash-out Refinance
2. HUD – Streamline Refinance Your Mortgage
3. CFPB
4. FTC – Home Equity Loans and HELOCs
5. CFPB – Second mortgage / 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 Get From Application to Closing on a First Cash-Out Refinance · How to Use Cash-Out Refinance Proceeds as Reserves on the Same Loan · How to Qualify and Apply for a Cash-Out Refinance and Keep Closing Costs Down
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
- 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.