The Quick Read: It depends mostly on the first mortgage you already have. If that loan has terms worth keeping, a closed-end home equity loan clears the line and leaves the first mortgage alone. If the first mortgage is not worth protecting, or you want a single payment, a cash-out refinance replaces both loans with one new first lien. Either way, the new loan is secured by your home, and approval depends on the appraisal, your credit and your income.
Here is the plain version. A cash-out refinance fits the homeowner who wants one loan, one payment and one lien, and who does not lose much by replacing the current first mortgage. A home equity loan fits the homeowner whose first mortgage is a keeper and whose HELOC balance is small enough to carry as a separate, fixed-schedule second loan. Neither one is better in the abstract. The deciding variable is what you give up when you touch the first mortgage.
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.
This article compares both routes, shows where each one tends to break down, and lays out what a lender will want to see. Lendmire’s cash-out refinance programs page covers the first-mortgage side of that choice in more detail.
What Actually Happens When a HELOC Draw Period Ends
The draw period ending means you can no longer borrow, and repayment begins. According to the CFPB, the lender may set a schedule to repay the full balance, and in some cases the whole amount can be due once the repayment period starts. Payments often jump because principal is now part of the bill. A line that was interest-only during the draw can feel very different once the balance has to be repaid on a set schedule.
Some plans work as a balloon, requiring payment in full at the end. Others spread repayment over a fixed period. The CFPB’s HELOC booklet also notes that some plans allow renewal. That is up to the lender and it is not automatic, so read your agreement before assuming an extension exists.
If you do nothing and cannot pay, the stakes are real. The FTC warns that failing to repay as agreed can lead to foreclosure, because the home is the collateral.
That is why most homeowners in this spot look for a replacement loan. Two routes come up most often: a new first mortgage that pays off the line, or a new closed-end second that does the same job without touching the first.
Side-by-Side
| Factor | Cash-Out Refinance | Home Equity Loan |
|---|---|---|
| What it replaces | First mortgage and HELOC | HELOC only |
| Lien structure | One new first lien | First stays; new second lien |
| Typical leverage ceiling | 80% LTV, one-unit primary residence | Set by each lender’s guidelines |
| Credit floor | Wholesale programs start at a 620 decision score | Set by each lender’s guidelines |
| Mortgage insurance | Above 80% LTV on the agency path, with one wholesale exception | Generally not part of the structure |
| Occupancy | Primary, second home or investment property; occupancy sets leverage | Varies by lender |
| Documentation | Full file: credit, income, assets, appraisal | Full file; requirements vary |
| Seasoning | First mortgage at least 12 months old | Varies by lender |
Two notes on that table. First, the cash-out column comes from the wholesale conventional programs Lendmire places files with, and every figure is subject to lender guidelines and full file review. Second, home equity loans are not delivered under the agency first-mortgage rules, so each lender writes its own eligibility. Anyone who tells you a single number applies to all second-lien lenders is guessing.
When a Cash-Out Refinance Is the Better Fit
A cash-out refinance is the better fit when the first mortgage is not worth protecting, or when simplicity matters more than preserving the old loan. Four situations stand out.
The first mortgage has no special value. If your current first mortgage has no terms you would miss, replacing it costs you little. Folding the HELOC into a new first mortgage leaves one lien and one payment.
The HELOC balance is large relative to the home’s value. A big line sitting behind a first mortgage can push combined leverage up. A single new first mortgage is sometimes the only structure that fits within the leverage limits. On a one-unit primary residence, conventional cash-out tops out at 80% LTV. On two- to four-unit principal residences, second homes and investment property, the ceiling is 75%, because occupancy and property type set the leverage. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
You want to stop managing two loans. Some borrowers value the clean structure more than the arithmetic.
You have a lot of equity and strong credit. A wholesale lane reaches 89.99% LTV with no mortgage insurance. It requires a 680 score, a 50% ratio, a thirty-year fixed, a primary residence and a conforming balance. Mortgage insurance is otherwise required above 80% on the agency path, and this lane is the one exception. It is not available everywhere. In Texas, a cash-out on a homestead is capped at 80% of the home’s value by the state constitution, and the wholesale lane is not written there. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Now the catch. Here is how the loan is classified. Under the Fannie Mae Selling Guide, paying off a second lien that did not fund the purchase makes the refinance a cash-out loan, whether or not you take any cash. Many borrowers hope a HELOC payoff will count as a limited cash-out refinance, the lower-leverage-risk category with the better terms. It only does if the HELOC was a purchase-money second. Most lines that paid for renovations, tuition, debt or a car do not qualify.
Seasoning matters too, and it has two parts. The first mortgage being paid off generally needs to be at least 12 months old, measured note date to note date, and a borrower must have been on title for six months, with exceptions for delayed financing, inheritance and legal awards. The no-mortgage-insurance wholesale lane described above adds its own six months of seasoning on top of its other requirements.
Where this route is a poor fit: when your current first mortgage has terms you would give up for nothing. A homeowner with a long-held first mortgage and a modest HELOC balance is often better off leaving the first alone. Refinancing the whole balance to retire a smaller line can cost far more than it saves, because closing costs and a new term apply to the full amount.
When a Home Equity Loan Is the Better Fit
A home equity loan is the better fit when the first mortgage is a keeper and the HELOC balance is manageable on its own. It turns a variable, draw-and-repay line into a closed-end loan with a set schedule. Your first mortgage stays untouched.
The first mortgage is worth keeping. If the existing loan carries terms you could not reproduce today, leaving it in place is the whole point. The new second lien pays off the HELOC and nothing else.
The balance is modest. A smaller payoff makes the cost of a full refinance hard to justify. A closed-end second carries its own closing costs, but they apply to a smaller loan.
You want a fixed schedule without restarting your first mortgage. The new loan has a defined term and a defined payoff date.
You can live with lender-specific rules. This is the tradeoff. Because second-lien eligibility is not standardized, leverage limits, credit floors and documentation differ by lender. That makes shopping more important, and it makes broad claims about qualifying unreliable.
Where this route is a poor fit: when combined leverage is already high. Lenders measure the HELOC by its credit limit as well as its balance, and an unused line can still count against you. If the appraisal comes in lower than expected, a second-lien lender may simply not have room to work.
Another caution. Moving HELOC debt into any long-term secured loan spreads the debt over a longer period. It does not eliminate it. Lower monthly pressure can come with more total interest over time.
Questions to Settle Before Choosing
1. Is the first mortgage worth keeping? If yes, lean toward the home equity loan. If no, a cash-out refinance becomes more attractive.
2. How big is the HELOC balance next to the first mortgage? A small line behind a large first mortgage rarely justifies refinancing the whole thing.
3. How much equity does the appraisal support? A lower value shrinks what can be refinanced under either route.
4. How was the HELOC used? Purchase-money use is the exception that can change the classification of a refinance.
5. Do you want to keep any of the line? Keeping the HELOC while refinancing the first means the HELOC lender must agree to be placed behind the new loan. That is called resubordination. The lender can decline, and a recorded agreement is typical when it agrees. If it declines, the line may need to be paid off to refinance at all.
A lower-than-expected appraised value can force a payoff structure to change midstream. Order the payoff statement from the HELOC servicer early, confirm the draw end date in the agreement, and plan for the line to be closed at payoff so it cannot be drawn again.
Edge Cases Worth Knowing
Government-backed loans. An FHA Streamline only refinances an existing FHA mortgage. It is not a way to retire a HELOC. A VA IRRRL likewise cannot be used to take equity out or pay off liens other than the VA loan being refinanced. According to VA Pamphlet 26-7, Chapter 6, a VA cash-out refinance can refinance any type of lien. So a VA-eligible homeowner paying off a HELOC is looking at a VA cash-out, not an IRRRL. FHA caps combined financing on cash-out loans below the purchase and rate-and-term levels, and any exact figure depends on the program and lender.
Energy-related improvements. Fannie Mae makes an exception for permissible energy-related expenses to the rule that only purchase-money seconds can be paid off in a limited cash-out file.
Balloon-style lines. If your plan requires payment in full at the end of the draw, a refinance may be the only practical exit.
Interest-only second loans. The FTC cautions that an interest-only home equity loan can end in a balloon payment that requires yet another loan to pay off. A closed-end second is only a clean exit if it amortizes.
Tax treatment. 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
Draw period: The stretch when you can borrow against the HELOC, usually with lower payments.
Repayment period: The stretch after the draw ends, when borrowing stops and the balance is repaid.
Cash-out refinance: A new first mortgage that pays off the existing loan or loans and may put cash in your hands.
Limited cash-out refinance: A refinance that pays off the first mortgage, closing costs and a purchase-money second, with only incidental cash back.
Resubordination: An agreement in which an existing second lien agrees to sit behind a new first mortgage.
Combined loan-to-value (CLTV): All liens on the home added together, divided by its appraised value.
A Balanced Verdict
For most homeowners the question reduces to one trade. A cash-out refinance buys simplicity and one lien but puts the whole first mortgage back on the table. A home equity loan protects the first mortgage but depends on a second-lien lender’s own rules and on combined leverage. If the first mortgage is a keeper and the HELOC balance is modest, the closed-end second usually deserves the first look. If the first mortgage has nothing worth protecting, or leverage and the appraisal make a second lien hard to fit, the cash-out refinance often wins.
Both routes put your home on the line, and both turn on credit, income and appraised value. Neither is a commitment to lend until a lender reviews the full file. It is also worth asking whether the real problem is the HELOC or the budget behind it. Moving debt to a longer term can lower the monthly strain, but it rarely fixes what created the balance.
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
Can a limited cash-out refinance pay off my HELOC?
Only if the HELOC was used to buy the home. Fannie Mae’s rules allow a limited cash-out refinance to pay off subordinate liens that funded the purchase, and the lender must document that all proceeds went toward the purchase price. A HELOC that paid for renovations, debt or other spending makes the file a cash-out refinance.
Does the draw period ending mean my HELOC goes away?
No. Borrowing stops and repayment begins. Depending on your plan, the balance may be repaid on a schedule or may be due in full. Renewal may be possible, but it is up to the lender and not automatic.
Can I keep my HELOC and still refinance my first mortgage?
Sometimes. The HELOC lender has to agree to be placed behind the new first mortgage, and it can say no. On a conventional refinance that keeps the HELOC and takes cash out, the file is treated as a cash-out refinance either way.
Can I use an FHA Streamline or VA IRRRL to pay off a HELOC?
No. Both are limited to refinancing an existing loan of the same type. A VA-eligible homeowner would need a VA cash-out refinance, which can pay off any type of lien.
Does an unused HELOC still matter when I refinance?
Yes. Lenders can count the full credit limit, whether or not you have drawn it, when they test combined leverage. Closing the line at payoff keeps it from counting against you later.
For your own numbers, request a scenario review with Lendmire.
For current guidelines and terms, see Lendmire’s refinance programs page.
About Lendmire
Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging FHA, VA, conventional and jumbo purchase and refinance loans through a wholesale lending network. Eligibility is determined by the lender on each file. 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
2. CFPB – What you should know about home equity lines of credit (booklet)
3. FTC – Home Equity Loans and Home Equity Lines of Credit
4. Fannie Mae Selling Guide B2-1.2-04, Subordinate Financing
5. VA Pamphlet 26-7, Chapter 6, Refinancing Loans
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 Cash-Out Refinance Funding Works on a Second Home · How the Cancellation Period Works on a Cash-Out Refinance · Does a Cash-Out Refinance Make Sense to Pay for Home Repairs on a Rural Property?
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
Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.