Cash-Out Refinance vs. Home Equity Loan
A cash-out refinance replaces your existing mortgage with a new, larger one and gives you the difference in cash, while a home equity loan is a separate second loan on top of your existing mortgage.
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Cash-Out Refinance
The borrower replaces their existing mortgage with a new, larger one, receiving the difference between the new loan and the old balance in cash.
- Potentially a single new interest rate and payment, replacing the old mortgage entirely
- Can result in a lower rate than a home equity loan if market rates have improved
- Resets the clock on your primary mortgage term
- If current market rates are higher than your existing mortgage rate, you lose that lower rate on your entire loan balance
- Full closing costs apply to the entire new loan amount
Home Equity Loan
A separate, second loan taken out against the home's equity, on top of and independent from the existing first mortgage.
- Existing first mortgage rate and term stay untouched
- Often a fixed rate and predictable payment for the second loan
- Closing costs typically apply only to the smaller second loan amount
- Adds a second monthly payment on top of the existing mortgage
- Second-lien rates are sometimes higher than a cash-out refinance's blended rate
Which one makes sense for you?
If your existing mortgage rate is at or above current market rates, a cash-out refinance can make sense by potentially improving your rate on the full balance. If your existing rate is well below current market rates, a home equity loan often makes more sense, since it leaves that favorable first mortgage untouched.
Key cost factors.
- How your current mortgage rate compares to today's market rates
- How much cash you need relative to your total available equity
- Whether you prefer one combined payment or two separate loans
- Total closing costs relative to the size of funds you're accessing
Before you decide.
- How does my existing mortgage rate compare to current market rates?
- What are the total closing costs under each option relative to the cash I need?
- Would I rather have one combined loan or keep my existing mortgage separate?
Frequently asked questions.
Does a cash-out refinance always result in a new interest rate for my whole loan?
Yes — a cash-out refinance replaces the entire existing mortgage, so your full loan balance is subject to whatever the new rate is, not just the cashed-out portion.
All figures on this page are illustrative examples for general education, not quotes, appraisals, or guarantees of actual pricing. Actual costs vary by provider, location, project scope, and market conditions — always get a specific quote before making a purchasing decision.
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