Both let you turn home equity into a lump sum. A cash-out refinance replaces your mortgage with a bigger one. A home equity loan leaves your mortgage alone and adds a separate fixed-rate second loan.
Side-by-side
| Cash-out refinance | Home equity loan | |
|---|---|---|
| What happens to your mortgage | Replaced with a new, larger loan | Stays in place |
| Payments | One | Two |
| Rate | First-mortgage rate on the whole balance | Usually higher rate, only on the new money |
| Typical maximum | 80% of value (conventional/FHA), up to 100% VA | Set by each lender as a combined LTV |
| Closing costs | Similar to a purchase loan | Usually lower |
| Term | Usually 15–30 years | Often 5–30 years |
| Waiting period | 12-month-old mortgage for conventional; 12 months occupancy for FHA | Set by the lender |
The deciding factor: your current rate
If your current mortgage rate is low, a home equity loan keeps it. If it's close to today's rates, a cash-out often wins because the whole balance moves to a first-mortgage rate.
Blended-rate example: you owe $250,000 at 3.5% and need $100,000.
- Home equity loan at 8.5%: blended rate ≈ ($250,000 × 3.5% + $100,000 × 8.5%) ÷ $350,000 ≈ 4.93%
- Cash-out at 6.75% on $350,000: 6.75% on everything
Here the home equity loan is cheaper. If your current rate were 6.5%, the blended rate would be about 7.07% and the cash-out would likely be cheaper. (Rates are examples only.)
Choose a cash-out refinance if
- Your current rate is near or above today's rates
- You want a single payment
- You also want to change your loan — drop FHA mortgage insurance, shorten the term, or remove a borrower
- You need more than a second-lien lender will allow
Choose a home equity loan if
- You have a low first-mortgage rate you want to keep
- You need a smaller amount
- You want lower upfront costs
And a HELOC?
A HELOC is a variable-rate line of credit you draw from as needed — useful for staged projects. See cash-out refinance vs. HELOC and our HELOC guide.
Estimate your cash-out with the calculator, or read the cash-out refinance guide.
Frequently asked questions
Is a cash-out refinance or a home equity loan cheaper?+
It depends mostly on your current rate. If your mortgage rate is low, a home equity loan usually costs less overall. If it's close to today's rates, a cash-out refinance often does.
Do home equity loans have closing costs?+
Usually some, but they're typically lower than a cash-out refinance, which has closing costs similar to a purchase loan.
Can I borrow more with a cash-out refinance or a home equity loan?+
A cash-out refinance allows up to 80% of value on most primary homes and up to 100% for eligible VA borrowers. Home equity loan limits are set by each lender as a combined loan-to-value.