The Quick Read: A cash-out refinance gives you one new payment on one bigger mortgage. A home equity loan leaves your current mortgage alone and adds a second payment on top of it. A cash-out refinance tends to suit homeowners whose current first mortgage no longer fits and who want to reset the whole loan. A home equity loan tends to suit those who like their first mortgage and only need a fixed lump sum. Which one produces the smaller monthly outlay depends on the balances, terms, and costs involved.
Side-by-Side
| Factor | Cash-Out Refinance | Home Equity Loan |
|---|---|---|
| Structure | New first mortgage replaces the old one | Second mortgage added behind the first |
| Payments afterward | One | Two (existing first plus the new second) |
| What gets repriced | The entire balance | Only the new borrowed amount |
| Leverage (conventional) | 80% LTV on a one-unit primary residence; 75% on 2-4 units, second homes, investment property | Combined balance limited by the lender’s equity cushion |
| Seasoning | First mortgage at least 12 months old; borrower on title 6 months | Set by the second-lien lender |
| Mortgage insurance | Above 80% LTV on the agency path; not applicable at cash-out leverage | Generally not applicable |
| Documentation | Full income, asset, and credit review | Income and credit review, lender-dependent |
| Occupancy | Primary, second home, or investment property; occupancy sets leverage | Lender-dependent |
| Existing first mortgage | Paid off at closing | Stays in place untouched |
Program figures here reflect the conventional wholesale lane, subject to lender guidelines and full file review. They are not a commitment to lend.
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.
When a Cash-Out Refinance Is the Better Fit
A cash-out refinance fits best when the existing first mortgage is the problem, not just the missing cash. It is a new first mortgage that pays off the old one, and you take the difference in cash. Per the Consumer Financial Protection Bureau’s home equity guide, that bigger loan may extend the time it takes to pay off your mortgage, and your monthly payment may increase.
That sentence is the heart of the payment estimate. Everything gets repriced and re-termed. Borrowers often compare the new payment to the old one and forget that the term reset, not only the balance, drives the change.
A few situations favor this route:
- The first mortgage no longer fits. If you want to change the structure of the whole loan, a second lien cannot do that.
- You want one payment. One loan, one due date, one escrow account. Fewer moving parts.
- You have a second lien to retire. Paying off a non-purchase second mortgage converts the refinance into a cash-out transaction for pricing and leverage, even if you receive no cash at closing. A cash-out refinance can fold that second lien into the new loan.
- You are consolidating other debts. Paying off other monthly obligations at closing can remove those payments from your ratios. Fannie Mae counts installment debts only when more than ten payments remain, with an exception where the payment significantly affects the borrower, per its Selling Guide on monthly debt obligations.
Here’s the catch. Conventional cash-out tops out at 80% LTV on a one-unit primary residence and 75% on two- to four-unit primaries, second homes, and investment property. The first mortgage being paid off must be at least 12 months old, and a borrower must have been on title for 6 months, with delayed financing, inheritance, and legal-award exceptions. One wholesale lane reaches 89.99% LTV with no mortgage insurance, at a 680 score and 50% ratio on a thirty-year fixed, primary residence, conforming balance, with its own six months of seasoning. In Texas, a homestead cash-out is capped at 80% of the home’s value by the state constitution, and that wholesale lane is not written there. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
Because standard conventional cash-out stops at 80% LTV, mortgage insurance rarely comes into play on that path; the no-mortgage-insurance wholesale lane is the exception to the rule that insurance applies above 80%. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
When a Home Equity Loan Is the Better Fit
A home equity loan fits when the first mortgage is worth keeping and you only need a defined sum. The CFPB describes a second mortgage, or junior lien, as a loan secured by your house while another loan is still secured by it, and names home equity loans among the common examples. The Federal Trade Commission says home equity loans typically have a fixed APR, are paid out as a lump sum, and are repaid with equal monthly payments over a fixed term. That predictability is the product’s main virtue.
A home equity loan tends to work when:
- Your first mortgage has features you want to keep. Leaving it untouched means its balance and remaining term stay exactly as they are.
- The amount you need is modest relative to your equity. Only the new money is priced, not your whole balance.
- You want a predictable second payment. A fixed amount over a fixed term is simple to budget.
A home equity loan is a different product from a HELOC, which is a revolving line. This article compares the fixed lump-sum version.
Now the tradeoffs. Your housing expense after the loan is the first mortgage payment plus the second. Fannie Mae’s guidance on monthly housing expense says the expense includes payments on subordinate financing secured by the subject property. So underwriters count the second payment as a real obligation. Not a footnote.
Second liens also complicate a later refinance. The second lender generally must agree to stay behind a new first mortgage unless you pay it off. Pay it off, and the refinance is a cash-out for pricing and leverage.
The risk is the same under both options. Your home secures the debt. Using home equity to pay off other debts doesn’t eliminate them. You are taking out one loan to repay another, and your house now backs the replacement.
How to Estimate the Payment Afterward
Skip the shortcut of comparing one advertised payment to another. Work from your own inputs, in this order:
1. List what you owe and what you’d borrow. Current first-mortgage balance, remaining term, and the cash you want.
2. Pick matched terms. Comparing a thirty-year cash-out refinance to a ten-year home equity loan skews the picture. Use the same term for both, then compare again with the terms you’d actually choose.
3. Build the cash-out case. One new balance equals the old payoff, the cash you take, and any closing costs you roll in. One payment covers that whole balance over the new term.
4. Build the home equity loan case. Keep your existing first-mortgage payment exactly as it is, then add the second-loan payment on the new amount.
5. Add the escrow items. Taxes, homeowners insurance, mortgage insurance if it applies, and any HOA dues. These ride along in both cases, so they rarely decide the contest, but they belong in the total.
6. Split the new payment into parts. In the cash-out case, picture one slice for the old debt and one for the extra cash. That shows what the cash costs you each month.
7. Check the ratios. Add up your total monthly obligations including the new payment and compare them to your income. Wholesale conventional programs set a total ratio ceiling of 50% on most automated files, while manually underwritten loans use 36% or 45% depending on reserves and score factors.
Ask the lender for the qualifying payment, not a teaser figure. For a principal residence, Fannie Mae uses the qualifying payment as the housing expense.
What Moves Your Number
- Term. A longer term lowers the payment and raises total interest. Resetting to a fresh term can lower the monthly figure even when the balance is larger.
- Rolled-in costs. Closing costs financed into the balance raise the payment slightly and the total cost more.
- Fixed versus adjustable pricing. Adjustable features can change the payment later. A fixed structure keeps it steady.
- Escrow changes. Insurance and tax adjustments can move the total even if principal and interest stay put.
The pricing mechanics belong with your Loan Estimate, not a blog post.
A short worked example, without dollars. Suppose your home carries a first mortgage at a modest share of its value, and you want cash equal to a modest slice of the price. In the cash-out case, the one new payment covers a balance equal to your old payoff plus that slice. In the home equity loan case, the old payment stays, and a smaller second payment covers only the slice. Compare the combined monthly totals at matched terms, then compare again at the terms you’d actually choose. The home equity loan’s combined payment can come out lower when the old first mortgage is cheap to keep, and the cash-out payment can come out lower when a longer new term spreads the debt. It cuts both ways.
Where the Two Options Collide With Your Equity
Both options draw from the same pool of equity. The CFPB guide says lenders typically require you to keep at least 10% to 20% of your home value as equity. The FTC adds that many lenders prefer you borrow no more than 80 percent of the equity. A home equity loan stacked on a first mortgage uses up the same combined-leverage ceiling that a cash-out refinance would, so the question is less “which unlocks more” and more “which structure costs less to carry.”
Government-backed paths follow their own rules. For an existing FHA loan, the FHA Streamline is a no-cash refinance with no appraisal and limited credit review, subject to a net tangible benefit. For an existing VA loan, the VA IRRRL carries a 0.5% funding fee unless exempt, no VA appraisal, a net tangible benefit, and seasoning of the later of 210 days and 6 payments. VA’s loan types page lists the IRRRL among its programs and says it can help reduce monthly payments or make them more stable. Those streamlines don’t pull cash out, though, so they answer a different question than this article does.
Common Mistakes When Comparing the Two
- Forgetting the existing payment. The home equity loan’s second payment stacks on the first mortgage. It does not replace it.
- Assuming a cash-out only reprices the cash. It replaces the whole first mortgage.
- Comparing mismatched terms. Different term lengths make a payment comparison almost meaningless.
- Overlooking a term reset. A lower payment can simply mean a longer road.
- Assuming “no cash at closing” means rate-and-term. Paying off a non-purchase second lien makes a refinance cash-out for pricing and leverage.
- Treating the LTV cap as a promise. It is a ceiling. The full file must still clear credit, ratios, and reserves.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Key Terms Defined
Cash-out refinance: A new first mortgage that pays off the existing one and gives you the difference in cash.
Home equity loan: A fixed-amount second mortgage secured by your home, repaid in equal payments.
Combined loan-to-value (CLTV): All loans secured by the home added together and divided by its appraised value.
Qualifying payment: The payment a lender uses to count your housing expense when it calculates your ratios.
Seasoning: The minimum time a loan or ownership must exist before it can be refinanced or tapped.
Junior lien: A loan that sits behind the first mortgage in repayment priority.
The Balanced Verdict
Neither option wins on every file. A cash-out refinance is usually the sturdier choice when the first mortgage itself needs fixing, when you want a single payment, or when a second lien or other debts could be rolled into one loan. A home equity loan usually fits better when you like your first mortgage and need a defined sum on a fixed schedule.
The flip points are simple. If your first mortgage is a keeper, the second lien starts to look attractive. If it is not, resetting the whole loan makes more sense, even though the term reset may stretch your payoff. Whichever way you lean, run both combined monthly totals at matched terms and again at real terms, and keep the equity cushion intact.
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. Details on Lendmire’s cash-out refinance programs are available, subject to lender guidelines and full file review.
Frequently Asked Questions
Will a cash-out refinance raise my monthly payment?
Often, yes, though not always. The new loan is larger, which pushes the payment up, but a longer term can pull it back down. Compare at matched terms to see which force wins on your file.
How many monthly payments will I have after each option?
One after a cash-out refinance and two after a home equity loan. The cash-out loan replaces your old first mortgage. The home equity loan leaves it in place and adds a second payment beside it.
Does a home equity loan count against me when I apply for another mortgage?
Yes. Fannie Mae counts payments on subordinate financing secured by the subject property in housing expense. If a HELOC is on the file, its payment counts as a recurring obligation, whether interest-only or principal and interest.
Can paying off a second mortgage change my refinance type?
Yes. Paying off a non-purchase second lien converts the transaction to a cash-out refinance for pricing and leverage, even if you receive no cash at closing. A purchase-money second can be included in a limited cash-out refinance.
Is the interest on either loan tax deductible?
It depends on how you use the money. Ask a tax professional about your situation.
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 serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. 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 – Using home equity to meet financial needs
2. Fannie Mae Selling Guide B3-6-05, Monthly Debt Obligations
3. FTC – Home equity loans and home equity lines of credit
4. Fannie Mae Selling Guide B3-6-03, Monthly Housing Expense for the Subject Property
This article is part of Lendmire’s cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Cash-Out Refinance vs Home Equity Loan to Consolidate Debts and Lower the Monthly Payment · Cash-Out Refinance vs Home Equity Loan to Buy Another House · Cash-Out Refinance vs Home Equity Loan When Child Support Counts as Income
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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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.