Cash-Out Refinance vs Home Equity Loan 2026

Mortgage lenders — banks, nonbank lenders, and credit unions

Cash-Out Refinance

Replace your mortgage and access equity in one loan — new rate on the full balance.

• New rate: Current 30-yr fixed rate (~6.5–7.5% May 2026)
• Max LTV: 80% for conventional; 85% FHA
• Closing costs: 2–5% of new loan amount
• Result: One loan at new rate

Pros

• One loan, one payment — simplicity if consolidating first + second mortgage
• Potentially lower rate if your current mortgage rate is above market
• Access to full equity in one transaction — no second mortgage
• Fixed rate available on the cash-out amount

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Banks, credit unions, and online lenders

Home Equity Loan (Second Mortgage)

Second mortgage on your equity — fixed rate, keeps your first mortgage intact.

• Rate: 8–12% fixed (second lien)
• Max LTV: Up to 85% CLTV
• Closing costs: Lower than cash-out refi
• Result: Two loans, first rate preserved

Pros

• Preserves your existing mortgage rate — critical if you have a 2–4% first mortgage from 2020–2022
• Lower closing costs than cash-out refi (closing costs on second loan only)
• Fixed rate and predictable payment on the new second mortgage
• Right when you need a defined amount and don't want to refinance your full balance

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A cash-out refinance replaces your entire existing mortgage with a new, larger mortgage — you receive the difference in cash. A home equity loan is a separate second mortgage that sits on top of your existing mortgage without touching it. Cash-out refi makes sense when you can get a meaningfully lower rate on the new first mortgage. A home equity loan makes sense when your existing first mortgage rate is already low and you don't want to give it up. Source: CFPB guidance on home equity at consumerfinance.gov.

Home equity loans generally have lower closing costs because you're taking out a smaller second loan rather than replacing the entire first mortgage. Cash-out refi closing costs (typically 2–5% of the total new loan balance) can easily exceed $8,000–$15,000 on a large mortgage. Home equity loan costs are calculated on the smaller second-loan amount. The CFPB's mortgage closing cost guidance at consumerfinance.gov has a full breakdown of typical charges.

A home equity loan preserves your existing first mortgage and its rate. If you locked in a 3–4% rate and the current refinance rate is 6–7%, a cash-out refi would force you to replace the low-rate first mortgage. A home equity loan lets you keep that rate on the first mortgage while accessing equity through a separate second loan at current rates — typically the better structural choice when your first mortgage rate is materially below current market rates.

Most lenders require you to retain at least 15–20% equity after the transaction — meaning you can typically borrow up to 80–85% combined loan-to-value (CLTV). For a home worth $500,000, that allows accessing up to $400,000–$425,000 in combined mortgage debt. Individual lender limits vary; some allow up to 90% CLTV for well-qualified borrowers. Source: CFPB at consumerfinance.gov and FDIC consumer guidance at fdic.gov.