The Quick Read: A cash-out refinance replaces your current mortgage with a bigger one and hands you the difference in cash. A home equity loan leaves your mortgage alone and adds a second loan on top. For a kitchen, the cash-out refinance tends to suit homeowners who would replace the current mortgage anyway, or who want one payment. The home equity loan tends to suit homeowners whose current mortgage is worth keeping and whose project is moderate. Both put your home on the line, and both are capped by how much equity you have.
Key Terms Defined
Equity is your home’s value minus what you owe on it.
LTV (loan-to-value) is the loan balance divided by the home’s appraised value, shown as a percentage.
Lien is a lender’s legal claim on your home. The first lien gets paid first if the home is sold or foreclosed.
CLTV (combined loan-to-value) adds every loan on the home, first and second, then divides by value.
Seasoning is the waiting period a lender wants before you can refinance a loan or pull cash out.
HELOC is a home equity line of credit. It works like a credit card secured by your house, not a one-time lump sum.
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: 7.32% as of October 22, 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.
Side-by-Side
A cash-out refinance swaps the whole first mortgage. A home equity loan adds a second one. Most other differences follow from that single fact. The cash-out column below reflects the conventional programs Lendmire sees across wholesale lenders. The home equity column stays general because each lender writes its own second-lien terms.
| Factor | Cash-Out Refinance | Home Equity Loan |
|---|---|---|
| Your current mortgage | Paid off and replaced | Stays in place |
| Number of loans after | One | Two |
| Leverage | 80% LTV on a one-unit primary home | Lender sets a CLTV cap |
| Multi-unit, second home | 75% LTV | Lender sets it |
| Credit floor | 620 decision score, conventional wholesale | Set by each lender |
| Mortgage insurance | None at 80% LTV or below | Lender’s own terms |
| Seasoning | Current mortgage 12+ months old | Lender sets; first loan untouched |
| Documentation | Full file: credit, income, DTI, appraisal | Credit, income and value review |
The 620 score is a starting point, not a promise. The automated underwriting finding governs most files, and every figure is subject to lender guidelines and full file review.
There is one more lane worth knowing. A wholesale option reaches just under 90% LTV with no mortgage insurance. It needs a 680 score, a 50% ratio ceiling, a thirty-year fixed rate, a primary residence and a conforming balance. It carries its own six months of seasoning. It is not written in Texas, where the state constitution caps a homestead cash-out at the agency figure. You can see how Lendmire’s cash-out refinance programs are arranged by program and equity reached. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
What Does Equity Actually Limit?
Equity limits both options, and neither one converts all of it to cash. A federal consumer guide says lenders typically require you to keep at least 10% to 20% of your home value as equity on cash-out refinances, home equity loans and HELOCs alike.
Run it as a picture. Say your mortgage is 55% of your home’s value and the kitchen needs about 10% of value. A cash-out refinance lands you near 65% LTV. That’s comfortably under the 80% cap. A second loan would land you in a similar place. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Now change it. Say your mortgage sits at 72% of value and the kitchen needs 12%. A standard cash-out refinance would land at 84%, which is over the 80% cap. A home equity loan might fit at a lender comfortable with that combined leverage. Or it might not. The just-under-90% lane could also come into play if the file fits its score and ratio rules.
These percentages are illustrations, not quotes. Your appraisal decides the real number.
When a Cash-Out Refinance Is the Better Fit
A cash-out refinance fits when the current mortgage is not worth protecting, or when you want one payment and one lender. It also fits when the project is big enough that the whole first mortgage may as well be reset.
Here are the situations where it tends to win.
You were going to refinance anyway. Maybe you want a different loan term, or you’re dropping a mortgage you no longer like. Folding the kitchen money into the same transaction means one set of closing costs, one appraisal and one set of documents. That is the cleanest version of this move.
You want a single payment. One loan is simpler to budget than two. Be honest about the trade, though. The new balance is larger, and the term may reset. A federal consumer guide notes a cash-out refinance may extend the time it takes to pay off the mortgage, and the monthly payment may also increase because a larger loan replaces the current one.
The project is large. A full gut remodel with the cabinets, floors, plumbing and electrical can take a big slice of equity. A first-lien refinance reaches 80% LTV on a one-unit primary home. That is a different ceiling than many second-lien lenders set. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Your credit and file are strong. Cash-out files are underwritten like any full refinance. On cash-out files, Fannie Mae’s Eligibility Matrix ties minimum reserves to files with a DTI above 45%. DTI is your monthly debts divided by your monthly income. A tidy file with some savings behind it gets through more smoothly.
Seasoning is the catch. The first mortgage you’re paying off has to be at least 12 months old, counted from note date to note date. You also need six months on title. There are exceptions for delayed financing, inheritance and legal awards. Bought the house last spring and the kitchen is falling apart? A cash-out refinance may simply be closed to you for now.
When a Home Equity Loan Is the Better Fit
A home equity loan fits when your current mortgage is worth keeping and the kitchen is a defined, moderate project. You borrow only what you need, and your first loan’s balance, term and payoff progress stay untouched.
Your existing mortgage is hard to replace. A cash-out refinance replaces the whole balance, not just the new money. If your current loan has terms you value, a second lien lets you leave them alone. This is the pivot point for many households. Which costs less depends on the specific terms of each loan, so it can’t be named without your numbers.
You’re inside the seasoning window. Because the first mortgage is not being paid off, the 12-month first-mortgage test for a cash-out refinance does not apply. A second-lien lender sets its own waiting rules.
The project is a fixed price. A signed contract with a set scope suits a lump-sum loan. You know the number, and you borrow that number.
You may move in a few years. A smaller second loan can be paid off at sale without disturbing the first mortgage. (Closing costs on a refinance get spread over the whole new balance, and a short stay gives them little time to pay off.)
The downsides are real. You carry two payments. A second mortgage still puts the home at risk even when the first mortgage is current. Closing costs on home equity products vary. The CFPB notes that some lenders waive some or all up-front costs on a HELOC while others charge fees, and similar variation shows up on lump-sum second loans.
Lendmire’s piece Is a Cash-Out Refinance Better Than a Home Equity Loan for a Big Remodel? goes deeper on the larger-project end of this decision.
What Both Options Share
Both options use your home as collateral. If you can’t make the payments, you could lose the home along with the equity you’ve built. Skip any lender who minimizes that.
Both usually pay out as a lump sum, and neither ties funds to your contractor’s progress. So the cash can sit in your account while the project slips. Contractors often want a deposit and then staged payments, so plan your own draw schedule before closing. Set aside a cushion for overruns too, because kitchens find surprises behind the walls.
On a refinance or second mortgage on your principal home, you also get a short cancellation window after closing. The CFPB’s rescission guidance says the three-day clock does not start until three things happen. You sign the note, you get the accurate Truth in Lending disclosure, and you get two copies of the rescission notice. Cancelling must be done in writing. A phone call does not count. It does not apply to second homes, so plan your contractor’s start date around it.
Across the wholesale programs Lendmire places files with, the kitchen-remodel cases that stall are rarely about credit. They stall on timing and equity. Borrowers pick a contractor and a start date before the appraisal comes back, then learn the value came in lower than hoped. Getting a realistic value read before signing a construction contract saves most of that pain.
Two Other Structures to Ask About
A HELOC. The CFPB describes a HELOC as an open-end line of credit that lets you borrow repeatedly against your equity. For a project with an uncertain budget, drawing as bills arrive has an obvious appeal. The catch: lenders can freeze or reduce a line if home values fall or your finances worsen, and some plans end with a balloon payment. Lendmire’s comparison of a cash-out refinance against a HELOC on the same equity in Texas covers the line-of-credit side in detail.
A renovation mortgage. Fannie Mae’s HomeStyle Renovation finances the remodel inside a first mortgage. You choose a contractor, the lender reviews that contractor’s qualifications, and you sign a construction contract. Funds are not released all at once, and proof of completion is required. It adds paperwork, and its leverage follows the purchase and limited cash-out ratios rather than the standard cash-out cap. Whether it’s available depends on the lender, so raise it with your loan officer.
One more trap deserves a mention: limited cash-out. That’s the refinance, where the new loan pays off the existing mortgage and closing costs with only incidental cash back. It allows higher leverage than a cash-out loan, but it will not fund a kitchen on its own. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
The Verdict
Neither option wins on its own. The honest question is whether your current mortgage is a loan you’d keep.
- Choose the cash-out refinance if you’d replace the mortgage anyway, want one payment, need a large amount, and clear the 12-month seasoning test.
- Choose the home equity loan if the first mortgage is worth keeping, the project is moderate and priced, and you’d rather not reset the whole balance.
- Ask about a HELOC or renovation mortgage if the budget is uncertain or the scope is big.
- Skip all of them for now if the monthly total makes you nervous. A smaller kitchen beats a squeezed budget.
This one is close to a toss-up for mid-sized projects. The cash-out side has the cleaner structure, and the second-lien side keeps your existing loan intact. Your first-mortgage balance, as a percentage of value, usually settles it.
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. Everything here is subject to lender guidelines and full file review, and nothing is a commitment to lend.
Frequently Asked Questions
Which is better for a kitchen remodel?
It depends on the first mortgage you hold today. A cash-out refinance replaces it, which helps if you’d change it anyway. A home equity loan keeps it, which helps if its terms are worth protecting. Equity left after the new debt matters too.
How much of my equity can I borrow?
Not all of it. A conventional cash-out refinance reaches 80% LTV on a one-unit primary residence and 75% on two- to four-unit homes. A federal guide says lenders typically want you to keep 10% to 20% equity on any of these products. Home equity lenders set their own combined limits.
Can I do a cash-out refinance on a home I just bought?
Usually not right away. The mortgage being paid off should be at least 12 months old, and you need six months on title, with exceptions for delayed financing, inheritance and legal awards. A home equity loan has different waiting rules set by the lender.
Do I have to pay the contractor from a lump sum?
Both products typically pay out as a lump sum, with no link to the contractor’s progress. A renovation mortgage releases funds in stages, with proof of completion required. A HELOC lets you draw as bills arrive.
Does the VA or FHA change this?
Yes, in some cases. VA cash-out requires a Certificate of Eligibility and that you live in the home. FHA cash-out is capped at 80% LTV. The FHA Streamline and VA IRRRL are rate-reduction loans, not remodel tools. Leverage and reserves vary by lender and program; the final terms follow the full file review.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire, NMLS# 2371349, is a mortgage brokerage with consumer lending licenses in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending partners, and each application is reviewed individually by the lender. 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 Older Americans Housing Guide, “Using Home Equity”
2. Fannie Mae Eligibility Matrix
3. CFPB HELOC booklet (current print version)
4. CFPB: right of rescission on a refinance or second mortgage
5. CFPB: what is a home equity line of credit
6. Fannie Mae HomeStyle Renovation Mortgage fact sheet
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 Documentation vs Shared Equity for a Primary Home · How a Cash In vs Cash Out Refinance Changes Your Loan Amount · Does a Cash-Out Refinance Take Longer Than a Purchase 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
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.