The Quick Read: both products turn home equity into cash, and both make your debt bigger. A cash-out refinance replaces your current mortgage with one larger loan and one payment. A home equity loan leaves your current mortgage alone and adds a second loan with its own payment. The better choice usually depends on what your current mortgage looks like and how much cash you need.
A cash-out refinance suits the homeowner whose current mortgage is not worth protecting, or who wants one loan instead of two. A home equity loan suits the homeowner who likes the first mortgage and needs a defined chunk of cash on top of it. Neither one is cheap money. Either one raises what you owe, and both put your home behind the debt.
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.
Key takeaways
- A cash-out refinance resets the whole first mortgage, so the new balance, rate and term apply to everything you owe.
- A home equity loan prices only the new money and keeps your first mortgage as it is.
- Total monthly outlay can rise under either option. A lower or higher payment on one loan does not tell you the total cost.
- Leverage limits, seasoning and credit scores decide how much cash you can reach. Having equity does not guarantee approval or a given amount.
Side-by-Side
Start with the structure, because everything else follows from it. The table below uses program figures from the conventional wholesale lanes Lendmire’s team places files with. It is subject to lender guidelines and full file review, and none of it is a commitment to lend.
| Factor | Cash-Out Refinance | Home Equity Loan |
|---|---|---|
| Structure | New first mortgage replaces the old one | New second mortgage behind the first |
| Payments | One mortgage payment | First mortgage plus a second payment |
| Leverage | 80% LTV on a one-unit primary residence; 75% on two- to four-unit primary residences, second homes and investment property | Set by the second-lien lender |
| Credit floor | 620 decision score on conventional files | Set by the second-lien lender |
| Mortgage insurance | None at 80% or below; no-MI lane reaches 89.99% | Generally none |
| Occupancy | Primary, second home or investment; occupancy sets leverage | Varies by lender |
| Documentation | Full income, asset, appraisal and title review | Varies; often lighter |
A few notes on that table. LTV means loan-to-value, the loan balance as a percentage of what the home appraises for. On a cash-out refinance, the leverage limit applies to the new loan. Occupancy sets the leverage, so it is a factor in the numbers rather than a gate.
One wholesale lane goes higher. It reaches 89.99% LTV with no mortgage insurance at a 680 score and a 50% total ratio. It requires a thirty-year fixed loan on a primary residence at a conforming balance, with its own six months of seasoning. That lane is not written in Texas. Home equity loan terms vary more widely, because each second-lien lender sets its own limits, so a combined LTV cap on the first and second mortgage together is the number to ask about. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
How Each One Changes Your Balance and Payment
A cash-out refinance pays off your existing mortgage and hands you the difference in cash. The federal consumer-finance regulator’s research staff put it plainly: a cash-out refinance takes the place of the original mortgage, while home equity loans and HELOCs leave the original first-lien mortgage intact. That one fact explains most of the comparison.
Say your first mortgage balance is reasonable and you want more cash. With a cash-out refinance, the new balance equals the old payoff plus the cash you take plus closing costs, if they are rolled in. The payment changes for three reasons:
- More principal. You owe more, so each month covers more.
- A different interest rate. The new loan reprices your whole balance, not just the new money.
- A reset term. A fresh thirty-year loan stretches the old balance out again, which can lower the payment while raising total interest paid.
Those three forces can pull in opposite directions. A longer term can soften the payment even when the balance grows. A higher rate on the whole balance can push it back up. You have to look at all three, not just the monthly figure.
A home equity loan works differently. It is a lump sum, usually at a fixed rate, secured by the home. Your first mortgage, with its balance, rate and remaining term, stays exactly as it was. You add a second payment on top. The CFPB’s explanation of home equity loans notes the lender could foreclose if you cannot repay. The same is true of a cash-out refinance, because both are secured by the house.
When Cash-Out Refinance Is the Better Fit
A cash-out refinance tends to win when the first mortgage itself is the problem, or when you want a single loan. Here are the situations where it fits best.
Your current mortgage is not worth keeping. If the rate and terms on your first mortgage are weaker than what a new loan would offer, repricing the whole balance helps. The new, larger loan carries the improvement on every dollar, not only the new cash. In that case, a second loan layered on top would leave a weaker first mortgage in place.
You want one payment and one lender. Two payments mean two due dates and two sets of terms to track. A single mortgage is simpler to budget. Plenty of homeowners value that more than a small difference in cost.
You need a large amount relative to your equity. Cash-out limits are tied to the new loan’s LTV. Because the first mortgage is rewritten, the whole loan is measured against value. Where the no-mortgage-insurance lane applies, the limit can reach 89.99% of value, subject to its score, ratio, property and seasoning requirements. Second-lien lenders set their own combined limits, which are often tighter.
You are consolidating debt and ready to stay disciplined. Rolling credit card balances into a mortgage can turn high-interest debt into long-term debt. That can lower the monthly strain. It also stretches the debt over many years, and the cards are free to fill up again. Treat it as a reset, not a license.
Practical limits on timing. A conventional cash-out has seasoning rules. The first mortgage being paid off must be at least 12 months old, measured note date to note date, and at least one borrower must have been on title for 6 months. Freddie Mac’s Guide section 4301.5 sets those two clocks and lists exceptions for special-purpose loans and for homes owned free and clear. A home with no mortgage on it is treated under the cash-out rules, not the rate-and-term rules. Delayed financing, inheritance and legal-award situations are also exceptions, so a recent cash purchase is not always a barrier.
When a Home Equity Loan Is the Better Fit
A home equity loan wins when the first mortgage is the asset you want to protect. Here is where it fits.
Your first mortgage is strong. If you carry a low rate and a balance you have been paying down for years, replacing it gives that up. A home equity loan lets you leave the old loan completely untouched and borrow only what you need. The new, usually higher-priced, money applies only to the second loan.
You need a specific amount for a specific project. A lump sum, usually at a fixed rate, with a fixed payment, fits a defined expense such as a renovation. You know the amount, the payment and the payoff schedule from the start.
You are close to the end of your first mortgage. A reset to a long new term would add years to a debt that is nearly gone. A second loan with a shorter term often fits better.
You want to avoid rewriting the whole loan. A cash-out refinance triggers a new full application, appraisal and title work on the entire balance. Closing costs on a cash-out refinance tend to be higher than on a home equity product, according to the CFPB’s HELOC brochure, which describes them as generally higher. A smaller second loan can mean less to close.
The tradeoffs to weigh. A second payment adds to your monthly obligation and to your debt-to-income ratio, the share of your income that goes to debt. The CFPB’s guide on using home equity describes the home equity loan as a second mortgage with a separate payment. It also warns that missing payments can mean losing the home. If you have little equity beyond the first mortgage, a second lender may not lend much at all.
A word on one rule that trips people up. When someone takes a new second mortgage together with refinancing the first, Fannie Mae’s Selling Guide treats that as a limited cash-out refinance, provided the first mortgage meets the limited cash-out criteria. Limited cash-out is the rate-and-term category, where only small incidental cash comes back. The point is that a second lien can change how a refinance is classified. Ask your loan officer how any second lien in the picture affects the file.
Why the Payment Rises (and the Total Cost Can Rise More)
The monthly number is the smallest part of the picture. A lower payment is not the same as savings. Stretching a balance over a new thirty-year term can drop the payment while adding years of interest. On the other side, a short-term home equity loan can carry a higher payment but wipe the debt out sooner.
Three checks help you compare the true cost of each path:
1. Add up the whole monthly outlay. For a home equity loan, that is the first mortgage plus the second. For a cash-out refinance, it is the single new payment. Compare the totals, not the individual loans.
2. Look at the payoff date. If the refinance pushes your final payment years further out, the extra interest may outweigh the monthly relief.
3. Note how equity grows. After a reset, early payments go mostly to interest, so your balance falls slowly at first. A home equity loan on a mortgage that is already well along leaves that progress in place.
The break-even question is simple to state. If your current first mortgage is better than what a new loan would offer, keeping it and adding a second loan often costs less over time. If your current mortgage is worse, repricing the full balance can come out ahead. Your loan officer can lay both versions out side by side on the Loan Estimate.
Run a stress test before you sign. Ask whether you could still make the new payment, or both payments, if your income dipped for a stretch. Both products are secured by your home. Missed payments are not a minor event in either case.
Edge Cases Worth Knowing
- Old home equity loan in the way. If you already have a second loan, a cash-out refinance can pay it off along with the first mortgage. That can simplify two payments into one, though the loan is classified under the cash-out rules.
- Recently bought home. The 12-month first-lien clock usually sets the earliest date for a conventional cash-out.
- A HELOC. A home equity line of credit is a revolving account rather than a lump sum, so the balance and payment move as you draw. It is a third option, not the focus here.
- Texas homestead. A cash-out on a Texas homestead, a Section 50(a)(6) loan, is capped at 80% of the home’s value by the state constitution. Lendmire’s Texas cash-out refinance vs home equity loan article covers how that cap shapes the choice.
- FHA and VA. The FHA Streamline and VA IRRRL are no-cash-out products for existing government loans. Neither puts cash in your hands. Government cash-out loans exist separately, with their own insurance or funding fee rules.
What Lenders Check Before Either One
- Equity after the new loan. Leverage is measured on the new balance against appraised value. On a cash-out, that is one loan. On a home equity loan, lenders look at the combined balance of both.
- Credit score. Conventional wholesale programs start at a 620 decision score. The no-MI cash-out lane asks for 680.
- Debt-to-income. The automated finding governs most files, with a 50% total ratio ceiling. Manually underwritten loans use 36% or 45%, depending on reserves and score factors.
- Seasoning and occupancy. Time on title, the age of the existing mortgage and how you use the property all matter.
- Documents. Expect income and asset records, an appraisal and a title review. Freddie Mac names the credit report or title commitment as proof of seasoning.
Fannie Mae and Freddie Mac set the waiting periods after a credit event: four years from a chapter 7 discharge, seven from a foreclosure, and four from a short sale or deed-in-lieu. Documented extenuating circumstances can shorten them. Everything here is subject to lender guidelines and full file review.
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 that gives you a lump sum while your first mortgage stays in place.
LTV (loan-to-value): the loan balance divided by the appraised value of the home, shown as a percentage.
Seasoning: the minimum time you must have owned the home, or held the existing loan, before you can cash out.
Limited cash-out refinance: a rate-and-term refinance that allows only small, incidental cash back.
Debt-to-income ratio: the share of your gross monthly income that goes to debt payments.
A Balanced Verdict
Neither product is the winner on its own. The first mortgage decides it. If your current mortgage is one you would happily keep, a home equity loan protects it and adds only what you need. If it is one you would happily replace, a cash-out refinance fixes the whole balance at once and leaves you with one payment.
Beyond that, three questions settle most cases. How much cash do you need compared with your equity? How far along is your first mortgage? And can you carry the larger monthly obligation if life gets tighter? Honest answers usually point to one option fast enough, though you should still compare the Loan Estimates side by side before choosing.
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. Start with Lendmire’s cash-out refinance programs page to see how the options line up.
Frequently Asked Questions
Does a cash-out refinance always raise my monthly payment?
No. The payment depends on the new balance and the term of the whole loan. A bigger balance pushes the payment up. A longer term can push it down. Total interest over the life of the loan can still rise even when the monthly figure falls.
Is a home equity loan a refinance?
No. It is a separate second mortgage, and your first mortgage stays exactly as it is. You end up with two payments instead of one. A cash-out refinance, by contrast, replaces the first mortgage with a new, larger one.
Can I take cash out right after buying my home?
Usually not on a conventional loan. Freddie Mac requires at least one borrower on title for six months and a first mortgage that is at least 12 months old. Exceptions exist for delayed financing, inheritance, legal awards and homes owned free and clear. Lender and program rules decide each case.
Which option is better for paying off credit cards?
It depends on your first mortgage and your habits. A cash-out refinance can roll card balances into one payment, but it stretches that debt over a long term. A home equity loan leaves a good first mortgage alone. In either case, the debt only goes away if the cards stay paid down afterward.
How much equity do I need to keep?
The loan must fit within leverage limits. A conventional cash-out refinance on a one-unit primary residence goes to 80% LTV, and a wholesale no-MI lane reaches 89.99% for qualifying primary residences. Home equity lenders set their own combined limits. All figures are subject to lender guidelines and 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 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 Office of Research blog on cash-out refinances
2. CFPB: What Is a Home Equity Loan
5. CFPB: Using home equity to meet financial needs
6. Fannie Mae Selling Guide B2-1.3-02
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 Run the New Payment on a Cash-Out Refinance Before Signing · How to Use a Cash-Out Refinance for a Down Payment on the Next Home · How to Get a Higher Loan-to-Value on a Cash-Out Refinance
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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- 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.