Home Equity Loan vs Cash-Out Refinance
Need a large sum from your home? You can add a second lien or replace your entire mortgage with a bigger one. The right choice hinges on your current mortgage rate.
A cash-out refinance replaces your first mortgage with a larger new loan; a home equity loan adds a second lien and leaves the first mortgage untouched. Cash-out usually wins when your current rate is above market; home equity loans usually win when your first mortgage has a rate worth keeping.
How the two structures differ
A cash-out refinance pays off your existing mortgage and opens one new, larger first mortgage. You get the difference in cash. One loan, one payment, one rate applied to the entire balance, old and new money alike.
A home equity loan leaves your first mortgage exactly as is and adds a second lien for the new borrowing. Two loans, two payments, two rates. Closing is usually faster and cheaper because the amounts are smaller and the underwriting lighter.
The decision rule: your current rate
If your first mortgage rate is well above today's market rates, cash-out refinancing usually wins: the new lower rate applies to the whole balance, and the interest savings on the old balance help pay for the cash you take. Run the lifetime interest on both paths.
If your first mortgage has a low rate worth protecting, a home equity loan wins by leaving it untouched. Example: a 3.5 percent first mortgage from years ago should almost never be refinanced away to pull cash; the second lien costs more on the new money but preserves the cheap rate on the big balance.
Cost and speed comparison
Cash-out refinances carry full mortgage closing costs, 2 to 5 percent of the new larger loan, plus a full appraisal and longer timeline, often 30 to 45 days. Home equity loans often close in 2 to 4 weeks with lower fees, and some lenders cover closing costs entirely.
Total interest decides, not closing speed. Model both: cash-out interest on the full new balance at the new rate plus its closing costs, versus first-mortgage interest unchanged plus home equity loan interest and fees. The calculator on this site handles the home equity side of that comparison.
Skip the arithmetic
Price the home equity side with the free home equity calculator, then compare.
Cash-out vs home equity questions
Which has a lower rate, cash-out refinance or home equity loan?
First-lien position is safer for lenders, so cash-out rates run closer to standard mortgage rates. But the rate applies to your entire balance, including money you already owed at a possibly lower old rate. Compare total interest, not headline rates.
Can I do both a cash-out refinance and a home equity loan?
Stacking a cash-out refinance and then a home equity loan multiplies closing costs and liens for no benefit in most cases. The exception is timing: a cash-out refinance now and a HELOC years later as needs change. Each decision should stand on its own math.