The Quick Read: A cash-out refinance replaces your first mortgage with a larger one and hands you the difference. A home equity loan leaves the first mortgage alone and adds a second loan on top. The refinance usually fits a homeowner who wants one loan and is fine resetting the first mortgage. The home equity loan usually fits someone who wants to keep the first mortgage untouched and borrow a fixed lump sum.
Both products borrow against the same thing: equity, which is the home’s current value minus what you owe. Both put the house up as collateral. The real question is what happens to the loan you already have.
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.
Side-by-Side
| Factor | Cash-Out Refinance | Home Equity Loan |
|---|---|---|
| What happens to the first mortgage | Paid off and replaced | Stays in place |
| Number of liens | One | Two |
| Housing payments after closing | One | Two |
| Leverage (conventional) | 80% LTV on a one-unit primary residence | Set by the second-lien lender; varies |
| Credit floor | 620 decision score on wholesale conventional programs | Varies by lender |
| Mortgage insurance | Generally above 80% LTV, with one wholesale exception | Not part of a typical second lien |
| Occupancy | Primary, second home or investment; occupancy sets leverage | Lender-specific |
| Seasoning | First mortgage 12 months old; 6 months on title | Lender-specific |
| Documentation | Full first-mortgage file | Full file on the second loan |
A few notes on that table. The conventional cash-out figures come from the wholesale programs Lendmire places files with, and they are subject to lender guidelines and full file review. The home equity loan column says “varies” because second-lien lenders set their own limits, and Lendmire does not arrange standalone second liens. The leverage, credit floor, mortgage insurance and seasoning figures in the cash-out column are conventional cash-out figures, so they should not be read as limits on a home equity loan.
How a Cash-Out Refinance Works
A cash-out refinance is a new first mortgage sized against the appraised value. The new loan pays off the existing first lien. Whatever is left after payoff and closing costs goes to you.
Here is the sequence on a typical file:
1. You apply for a new first mortgage. The lender reviews credit, income, debts and the property, the same as any first-lien loan.
2. An appraisal sets the value. The new loan amount is capped as a percentage of that value.
3. The lender checks seasoning. On conventional loans, the mortgage being paid off must be at least 12 months old, counted note date to note date. A borrower must also have been on title for 6 months, with exceptions for delayed financing, inheritance and legal awards.
4. The new loan pays off the old one. You end up with one loan and one payment.
Freddie Mac’s Guide states the six-month title requirement and lays out the delayed-financing path for recent cash buyers. Even under delayed financing, cash-out limits still apply.
On leverage, a standard conventional cash-out tops out at 80% LTV on a one-unit primary residence. Two- to four-unit primary residences, second homes and investment properties are capped at 75%. Occupancy sets the number. A separate wholesale lane reaches 89.99% LTV with no mortgage insurance, and it is the one exception to both the 80% cap and the mortgage-insurance rule. It needs a 680 score and a 50% ratio on a thirty-year fixed, a primary residence and a conforming balance. It carries its own six months of seasoning. Texas homestead loans are a different case: the state constitution caps a Section 50(a)(6) cash-out at 80% of the home’s value, and the wholesale lane is not written there. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
How a Home Equity Loan Works
A home equity loan is a separate second mortgage. The CFPB describes it as a new mortgage loan you take out against your home. It pays out as a lump sum, usually with a fixed interest rate. Your first mortgage stays exactly as it is.
That means two payments each month. It also means two liens. If you can’t repay the second loan, the lender can foreclose, just as with a first mortgage.
The lender looks at your first mortgage and the new loan together against the home’s value. The qualifying focus is the combined debt. Fees and upfront costs apply, so compare more than the monthly payment.
One point of confusion worth clearing up: a home equity loan is not a HELOC. A home equity loan is a closed-end lump sum. A HELOC is an open-end line you can draw on repeatedly, and a lender can freeze or reduce it if values drop.
When a Cash-Out Refinance Is the Better Fit
A cash-out refinance tends to fit when:
- You want one loan. One lien and one payment is simpler to manage than two.
- Your current first mortgage has no special value. Replacing it costs you nothing you want to keep.
- You need a larger amount. The new first mortgage is sized against the full appraised value, so it can reach more equity than many second liens.
- You want to change the loan itself. A refinance lets you change the term or loan type.
- You are a veteran with a non-VA loan. A VA-backed cash-out refinance can move a non-VA loan into a VA-backed one, and it requires a Certificate of Eligibility plus living in the home. It runs through a private lender, not VA directly.
The tradeoffs are real. You pay closing costs on a full first mortgage, and the whole balance resets under new terms. Conventional cash-out loans also carry pricing adjustments that a plain rate-and-term refinance does not.
Lendmire’s cash-out refinance programs page lays out the conventional lanes the brokerage places, including the occupancy-based leverage caps above.
An edge case: the recent cash buyer
Say you paid cash for a home and now want that money back. The six-month title wait would normally block a cash-out. Delayed financing is the exception. It lets a recent cash buyer refinance without waiting, but the loan is still treated as cash-out. The cash-out limits apply, and the borrower must still meet the general eligibility rules.
When a Home Equity Loan Is the Better Fit
A home equity loan tends to fit when:
- Your first mortgage is worth keeping. If its terms are better than what a new first mortgage would carry, replacing it is the expensive move. A second lien leaves it alone.
- You need a defined amount once. A fixed lump sum with a fixed payment suits a single project or expense.
- You do not want to reset the clock. A refinance restarts the first mortgage. A second loan does not.
The tradeoffs: two payments, a second lien, and upfront costs that vary by lender. Lendmire arranges first-mortgage programs, so for a standalone second lien a homeowner would work with a lender that offers one.
Questions to Settle Before Choosing
1. What is the existing first mortgage worth keeping? If the answer is “a lot,” lean toward the second loan. If it is “nothing,” the refinance is cleaner.
2. How much do you need? The amount matters because a refinance puts the new loan against the whole balance, while a second lien borrows only the sum you request. Weigh the size of the need against the closing costs each route carries.
3. How long will you stay? A refinance carries closing costs on the whole balance. A short stay gives those costs less time to pay off.
4. Does the property qualify? Seasoning, occupancy and equity rules can block a cash-out even when equity exists.
5. Is this for debt consolidation? The CFPB recommends exploring options with a credit counselor that do not put your home at risk of a forced sale. Both products secure the debt with your house.
Where Files Stall
Seasoning evidence. The 12-month age of the loan being paid off and the six-month title history both need support. A recent purchase with a settlement statement is clean. A transfer with unclear history takes more review.
Appraisal value. The loan is sized against appraised value. A light appraisal shrinks the amount available, which can change the plan entirely. A well-documented reconsideration request with recent nearby sales can help.
Occupancy. Because occupancy sets the leverage, a file that lists the wrong occupancy gets reworked. Be exact about how you use the home.
Mortgage insurance above 80%. Above 80% LTV the agency path generally requires mortgage insurance, with the no-MI wholesale lane as the exception. Where it applies, you can request cancellation at 80% of original value with a good payment history, no subordinate liens and no decline in value. The servicer must 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.
On a second lien, the files stall at the combined-debt calculation and the first lender’s consent terms. Ask early.
Your Right to Cancel
Both a refinance and a home equity loan on your primary residence carry a right to cancel. The CFPB explains that it lasts three business days. Business days include Saturdays but not Sundays or legal public holidays. If the lender fails to give required disclosures, the right can extend for up to three years.
One misconception to clear up. Canceling a refinance does not cancel your original mortgage. You still owe the original loan.
Key Terms Defined
Equity: The home’s current value minus the amount you owe on it.
Lien: A lender’s legal claim on your home as collateral for a loan.
Second mortgage (junior lien): A loan secured by your house while another loan is still secured by it.
Seasoning: The minimum time you have held title, or the existing loan has been open, before a cash-out refinance is allowed.
LTV (loan-to-value): The loan balance as a percentage of the home’s value.
Delayed financing: An exception that lets a recent cash buyer take cash-out without the usual title wait.
The Verdict
Neither product wins on its own. The refinance gives you one loan and the most room, and it replaces your first mortgage. The home equity loan keeps your first mortgage and adds a second lien and a second payment.
If the first mortgage has nothing worth saving and you want a single clean loan, the cash-out refinance is usually the fit. If the first mortgage is worth protecting and the amount is defined, the second loan usually is. Either way, you are borrowing against your home, and the home is the collateral.
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
Which one leaves my current mortgage alone?
The home equity loan. It sits behind your first mortgage as a second lien, so the first loan keeps its balance and terms. A cash-out refinance does the opposite and pays the first mortgage off.
Do I make one payment or two?
A cash-out refinance leaves you with one mortgage payment. A home equity loan adds a second payment alongside your first mortgage. Both are secured by the home, so missed payments put it at risk.
Is a home equity loan the same as a HELOC?
No. A home equity loan is a lump sum, usually at a fixed rate. A HELOC is an open-end line you can borrow from repeatedly, and a lender may freeze it if your home’s value drops.
Can I cancel after I sign?
Usually, for three business days, when the loan is on your primary residence. Saturdays count, Sundays and legal holidays do not. If the lender skips required disclosures, the window can run longer, up to three years. Canceling a refinance does not erase your original loan.
Does a cash-out refinance require a primary residence?
No. A conventional cash-out can be written on a primary residence, a second home or an investment property. Occupancy sets the leverage: 80% LTV on a one-unit primary residence, and 75% on two- to four-unit primary residences, second homes and investment property. These are subject to lender guidelines and full file review.
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
2. CFPB – Older Americans housing guide (home equity)
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 Meet Seasoning for a Cash-Out Refinance on a Primary Home · How to Get a Higher Loan-to-Value on a Cash-Out Refinance · How Lenders Underwrite a Cash-Out Refinance on a Home You Own
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
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Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.