The Quick Read: Both products borrow against the home you live in, and neither one is an investment loan. A cash-out refinance replaces your first mortgage with a larger one and hands you the difference. A home equity loan leaves your first mortgage alone and adds a second loan behind it. The cash-out refinance tends to suit people who would benefit from re-doing the first mortgage anyway. The home equity loan tends to suit people with a mortgage they want to keep. Either way, your house backs the debt. If the investment loses money, the loan stays.
Side-by-Side
The table compares structure and eligibility. Home equity loan terms vary by lender, so that column describes how the product works rather than a set program.
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.
| Factor | Cash-Out Refinance | Home Equity Loan |
|---|---|---|
| Structure | New first mortgage replaces the old one | Second loan behind the first |
| Leverage | 80% LTV, one-unit primary residence | Combined limit set by the lender |
| Two- to four-unit homes | 75% LTV | Lender’s combined limit |
| Credit floor | 620 decision score on wholesale programs | Set by each lender |
| Mortgage insurance | Rarely applies at these limits | Not typical on second liens |
| Occupancy | Primary, second home or other property; occupancy sets leverage | Lender sets its own rules |
| Documentation | Full income, asset and appraisal review | Varies, often lighter |
| Existing first mortgage | Paid off and re-created | Stays in place |
| Payments | One larger payment | Two payments |
A few notes on the table. LTV, or loan-to-value, is the loan balance divided by the home’s value. The cash-out figures come from the wholesale programs Lendmire arranges, and they are subject to lender guidelines and full file review. Nothing here is a commitment to lend.
Lendmire’s cash-out refinance programs page lays out the program side in more detail.
What Each Product Actually Does
A cash-out refinance pays off your current mortgage with a new, larger one. You keep the difference. That means your whole balance gets re-created on new terms.
A home equity loan is a separate mortgage. It sits in second position behind your first. You get a lump sum and make a second monthly payment.
That lien order matters. If you ever default, the first mortgage gets paid first. Lenders price and limit second liens with that in mind. Lien position and your existing loan are the two facts that drive most of this decision.
The Consumer Financial Protection Bureau explains that a cash-out refinance may lengthen your payoff time and raise your monthly payment, because a larger loan replaces the current one. It also notes that lenders typically want you to keep some equity in the home, often 10% to 20% of its value, whichever product you pick.
The Part That Matters More Than the Product
You are not choosing between two loans. You are choosing how much of your home to put behind an asset you may not be able to sell.
Private equity is bought through a private placement, which is a sale of securities that is not offered on a public exchange. The SEC’s investor education site says that a private placement is highly illiquid compared with an investment bought on an exchange. Illiquid means you may not be able to get your money out when you want it. The same bulletin says many offerings are limited to accredited investors, partly so participants can sustain a loss.
Put those two facts next to a mortgage. The loan payment is fixed and due every month. The investment may pay nothing for years. It may call more capital from you on a schedule you do not control. That mismatch is the risk, and it is the same whichever loan you pick.
Another point surprises borrowers. The lender does not underwrite the investment. In the files Lendmire arranges, a lender reviews your file on your existing income, assets, credit and the home. Projected returns from a private placement do not count as income. So approval says nothing about whether the investment is sound.
Many cash-out programs do not tie you to a specific use of the money. Still, read the loan documents, because what you sign can include statements about how you will use the funds. Ask your loan officer before you apply.
When a Cash-Out Refinance Is the Better Fit
A cash-out refinance fits when the first mortgage is worth re-doing on its own merits. That might mean you want to change the loan term. It might mean you want to fold a second lien into one loan. It might mean the current loan has features you would be glad to leave behind.
It also fits when you want one payment instead of two. Some borrowers like the simplicity of a single loan.
Here is what the wholesale programs Lendmire places files with look like on the cash-out side:
- Leverage: 80% LTV on a one-unit principal residence. On two- to four-unit principal residences, second homes and investment property, the limit is 75%.
- Occupancy: A cash-out can be written on a primary residence, a second home or an investment property, and occupancy sets the leverage.
- Credit and ratios: The wholesale conventional programs start at a 620 decision score. The automated finding governs most files, with a total debt-to-income ratio ceiling of 50%.
- Seasoning: The first mortgage being paid off must be at least 12 months old, counted from note date to note date. A borrower generally needs to have been on title for six months. Delayed financing, inheritance and legal-award exceptions exist.
- A wholesale lane with no mortgage insurance: One lane reaches 89.99% LTV at a 680 score and a 50% ratio. It is limited to a thirty-year fixed loan on a primary residence with a conforming balance. It carries its own six months of seasoning.
- Texas: A cash-out on a Texas homestead is capped at 80% of the home’s value by the state constitution. The wholesale lane above is not written there.
Mortgage insurance is required above 80% LTV on the agency path, with the no-insurance wholesale lane above as the exception, but standard cash-out limits sit at or below 80%, so insurance is rarely part of this decision. That is a real difference from many purchase loans. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Here is a scenario with no dollar amounts. Say your home carries a first mortgage equal to about half its value. An 80% cash-out ceiling leaves room to borrow roughly 30 points of value at the maximum. Borrowing the maximum would leave you with only 20% equity. You would also have re-created the entire balance, not just the new money. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
That last point is the catch. If your existing mortgage has terms you like, a cash-out refinance re-prices all of it. A home equity loan leaves the first mortgage untouched. Whether that tradeoff matters depends on how your current loan compares with today’s options, which your loan officer can review with you.
One more trap. A cash-out refinance can trigger home-sale conflicts. Under an earlier version of the Fannie Mae Selling Guide’s cash-out refinance section, a loan was not eligible for delivery if the property was listed for sale when the loan disbursed. Rules change, so confirm the current version. If you might sell soon, a cash-out refinance is the wrong tool.
When a Home Equity Loan Is the Better Fit
A home equity loan is the better fit when your first mortgage is worth keeping. You borrow only the new money, and the first loan stays exactly as it is.
It also fits when the amount you need is modest compared with your balance. Re-creating a large mortgage to access a small amount of equity is hard to justify.
Closing costs differ too. A cash-out refinance carries full refinance costs, including the appraisal and origination. A home equity loan often costs less to set up, though lenders vary, so compare the Loan Estimate from each.
There are tradeoffs. You make two payments. Second-lien lenders set their own credit floors, combined-LTV limits and documentation rules, so those can run tighter or looser than the first-mortgage programs. Lenders look at combined loan-to-value, or CLTV, which adds up every loan secured by the home. A strong first-mortgage position does not help if the combined total runs high.
Lendmire is a mortgage broker arranging first-mortgage programs. A home equity loan is a separate second-lien product, so Lendmire does not claim to cover that side of the market. Compare it against what a second-lien lender offers you directly.
If a flexible draw sounds better than a lump sum, a HELOC, or home equity line of credit, is a third option. It lets you borrow in stages. That can line up with an investment that calls capital over time.
What Does Break-Even Look Like?
Run the downside before the upside. Say you borrow against your home and put the money into a fund. The investment has to earn more than the cost of the loan, after the investment’s own fees, just for you to come out even. That bar is higher than most people expect.
Now run the bad case. The fund returns nothing for several years, then sells below what you paid. Your loan payments continued the whole time. You still owe the full balance. Your equity cushion, the part of the home’s value not owed on any loan, is now thinner than when you started.
Work through this before you apply, using your own numbers and your own comfort with loss. If you could not carry both payments with no investment income, the loan is too big.
Eligibility Questions Lenders Ask
Whichever route you take, the lender looks at the same basics:
- Appraised value. It sets the leverage ceiling. If the home appraises low, you may be able to borrow less than you hoped.
- Credit. Wholesale programs start at a 620 decision score. Past credit events carry agency waiting periods, such as four years from a chapter 7 discharge and seven from a foreclosure.
- Debt-to-income. This is the share of your income that goes to debt payments, including the new loan.
- Occupancy. A cash-out is written on a primary residence, a second home or an investment property, and occupancy sets the leverage. For the home you live in, the 80% figure above applies.
FHA and VA cash-out loans exist for eligible borrowers. The FHA Streamline and the VA IRRRL are different. They are rate-and-term products with little or no cash back, so they are not a way to fund an investment.
Also check whether you qualify to invest at all. Many private offerings accept only accredited investors. If you cannot qualify, be wary of being steered toward riskier, unregistered products.
Key Terms Defined
Cash-out refinance: a new, larger first mortgage that pays off the old one and gives you the difference in cash.
Home equity loan: a second mortgage that adds a lump-sum loan behind your first mortgage.
Lien: a lender’s legal claim on your home if the loan goes unpaid.
Combined loan-to-value (CLTV): all loans secured by the home, added together and divided by its value.
Private placement: a sale of securities outside a public exchange, usually limited to certain investors.
Illiquid: hard to sell or cash out quickly without a loss.
Which One Fits? A Balanced Verdict
Neither product is “better” here. The better choice is the one that matches your first mortgage.
If your first mortgage has features you want to keep, a home equity loan, or a HELOC, leaves it alone. If the first mortgage is due for a change anyway, a cash-out refinance does that and raises cash in the same step.
The bigger question sits above both. Cash-out refinancing draws down your current wealth, and CFPB research found that more than half of cash-out borrowers surveyed in each year from 2014 to 2019 used the money to pay off bills or debts. Paying off debt is the typical use. Backing an illiquid investment with your home is not, and it deserves a harder look.
A sensible limit is borrowing only an amount you could repay from your regular income if the investment returns nothing. If that feels uncomfortable, keep the home out of it.
Frequently Asked Questions
Can I use a cash-out refinance to invest in private equity?
Many cash-out programs do not restrict how you spend the money, but the loan documents may ask you to state your purpose. The lender reviews your file on your income, credit and home, not on the investment. Confirm the terms with your loan officer before you apply.
Does a lender count expected investment returns as income?
No. Lenders generally do not count speculative returns from a private placement as income. Qualifying rests on your existing income and assets.
Which keeps my current mortgage?
A home equity loan keeps it. A cash-out refinance pays it off and replaces it, so the whole balance moves onto new terms.
How much equity do I have to leave in the home?
It depends on the program and the lender. On the wholesale programs Lendmire arranges, cash-out reaches 80% LTV on a one-unit primary residence, which leaves at least 20% equity. The CFPB also notes that lenders commonly want borrowers to keep some equity. Figures are subject to lender guidelines and full file review.
What happens if the investment loses money?
The loan does not shrink. Your payments continue, and the home remains the collateral. Missed payments can lead to foreclosure, which is why the loan size matters more than the product.
Next Step
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.
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.
Get Started
Ready to find the right loan for you?
See your offer in seconds. No credit pull, no obligation.
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. SEC Investor.gov – Private Placements under Regulation D
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 Plan and Use a Cash-Out Refinance to Fund Large Renovations · How to Use a Cash-Out Refinance for a Down Payment on the Next Home · How to Qualify and Apply for a Cash-Out Refinance on a Rural Home With a USDA 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
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.