If you have a mortgage and need cash, a cash-out refinance replaces your current mortgage with a larger one; a home equity loan leaves the mortgage in place and adds a separate loan secured by your home. The better choice depends on your current mortgage rate, the actual fees and credits in each offer, how long you expect to keep the loans, and whether you can manage a second secured payment. Neither option is automatically cheaper, and advertised rates alone cannot settle the comparison.
What changes when you refinance or take a home equity loan?
Cash-out refinance: replace the first mortgage
A cash-out refinance pays off your existing mortgage and replaces it with a new, larger mortgage. After the old balance and transaction costs are accounted for, the remaining proceeds go to you. You therefore apply the new loan’s terms to the balance that was already borrowed as well as to the additional cash. The key question is not just the rate on the cash you receive; it is whether the new terms make sense for the entire refinanced balance. The Consumer Financial Protection Bureau describes cash-out refinancing as an alternative to a home equity line of credit (HELOC) in its overview of similar loan types.
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That distinction matters if your current mortgage has a rate or remaining term you want to keep. With a refinance, you do not retain the old first-mortgage balance under its old terms; the larger replacement loan has a new rate and payment. Compare that new offer with the current mortgage’s rate, remaining balance, and remaining term, not just with the amount of cash you expect to receive.
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A home equity loan is a lump-sum loan secured by your home. If you already have a mortgage and keep it, the home equity loan generally sits alongside it as a second mortgage. You retain the first mortgage’s existing rate and payment, but take on a separate loan payment and its costs. The CFPB explains the product in its guide to home equity loans.
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Keeping the first mortgage can be important when you do not want to reprice its balance, but it does not make the new borrowing cost-free. Your budget has to accommodate both the current mortgage payment and the home equity loan payment, and the home equity loan has its own rate, fees, and repayment terms. The second loan is also secured by the home, so the choice is not simply between one payment and a harmless add-on.
At a glance
| Question | Cash-out refinance | Home equity loan |
|---|---|---|
| What happens to the first mortgage? | It is paid off and replaced by a larger mortgage. | It remains in place; the home equity loan is an additional secured debt. |
| How many loan payments? | Usually one mortgage payment for the replacement loan. | Two loan payments if you keep the first mortgage: the existing mortgage and the home equity loan. |
| What rate do you need to assess? | The new rate on the full replacement mortgage, compared with the rate and remaining balance of your current mortgage. | The home equity loan’s rate and payment, alongside the existing mortgage’s unchanged terms. |
| Can the home be at risk? | Yes. The new mortgage is secured by the home. | Yes. The home equity loan is secured by the home. |
These are structural differences, not a price ranking. Which one costs less depends on the actual offers and your situation.
Should you refinance or get a home equity loan?
Start with the mortgage you already have. If its rate and remaining terms are valuable to you, refinancing replaces them, while a home equity loan can preserve them. If you choose a home equity loan, include both payments and all fees when judging affordability. If you choose cash-out refinancing, evaluate the terms on the entire new mortgage balance rather than treating the added cash as a small, separate loan.
Then compare the same borrowing need over the same expected holding period. Gather dated offers close together in time, since mortgage rates can change daily; offers issued on different dates may differ because the market moved, not only because lenders priced them differently. The CFPB’s mortgage-shopping guidance recommends shopping and comparing rates, fees, and APR.
- Favor closer analysis of a home equity loan if preserving your current mortgage terms is important and a second payment fits your budget.
- Favor closer analysis of a cash-out refinance if the terms on the full new mortgage work for you and the costs make sense over your expected time with the loan.
- Pause before either choice if the new payment is hard to manage, you are relying on a low advertised rate rather than a full offer, or you have not considered the risk of pledging your home.
These are starting points, not universal rules. A lower quoted rate does not necessarily mean a lower total cost, and the information here does not establish current market rates or individual eligibility.
Ask yourself what you are comparing: the cost of getting the cash, the cost of replacing the whole mortgage, or the monthly amount you can afford. Those are related but different questions. A refinance applies its new terms to both the existing mortgage balance and the additional borrowing. A home equity loan leaves the current mortgage terms alone but adds a new payment. Comparing only the new loan’s advertised rate or payment can miss the effect on the debt you already have.
How to compare the real cost of offers
Read the Loan Estimate, not just the advertised rate
Request a Loan Estimate for each product you are considering and compare the documents. The CFPB’s Loan Estimate comparison guide identifies the figures to review, including the loan amount, interest rate, principal-and-interest payment, mortgage insurance if applicable, total monthly payment, upfront loan costs, lender credits, and cash to close. Confirm that you are comparing offers for the same borrowing need, and account for both payments when the offer keeps your first mortgage and adds a home equity loan.
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Check that the documents describe the same kind of transaction and the same cash need. For a refinance, look at the new total loan amount and the cash to close; for a home equity loan, look at the additional loan amount and its costs while remembering that the existing first mortgage remains. A loan with a smaller upfront bill may still have a higher rate or a larger balance if costs are being handled differently. Ask the lender to explain items you do not understand instead of treating an advertised rate as the full offer.
Use the “In 5 years” line as a comparison tool
In the Loan Estimate’s Comparisons section, the “In 5 years” figure shows the total interest and fees paid over five years. The CFPB recommends using it as a useful comparison horizon because borrowers keep a mortgage for about five years on average before moving or refinancing. That is a general benchmark, not a prediction of how long you will keep your loans. If your plans point to a shorter or longer period, consider how costs and payments compare over that period too.
The five-year figure is not a worst-case forecast for an adjustable-rate loan: its calculation assumes rates remain the same. Treat it as a standardized comparison, not a guarantee of future payments or total cost.
Use the figure as one part of the decision, not as a reason to ignore your own plans. If you expect to move or refinance sooner than five years, upfront costs and lender credits may matter differently than they would over a longer stay. If you expect to keep the borrowing longer, check the full terms and the payment path rather than assuming the five-year summary tells the whole story. No single horizon produces a universal breakeven point without the actual loan amounts, rates, fees, and timeline.
Account for APR, fees, credits, and cost timing
APR can help compare loans with different interest rates and fees because it reflects the rate plus certain charges. It does not replace checking the loan terms, payment, cash to close, and expected holding period. A lender credit may reduce what you pay upfront while being tied to a higher rate. Alternatively, costs may be added to the loan balance. Either way, “no closing costs” does not mean the costs disappear: a higher rate can cost more over time, and rolled-in costs increase what you owe and can reduce your home equity.
Ask each lender to explain differences in fees and credits. Compare offers close together in time, and check whether the fees are paid upfront, offset by a credit, or incorporated into the balance. The same headline rate can have a different cost depending on those details.
When offers have different rates and fees, APR can help you spot that trade-off, but it is not a substitute for comparing like with like. Review the loan amount, payment, cash to close, and the time you expect to keep the loan. A credit that lowers upfront costs may be useful for some borrowers, but you should understand whether it comes with a higher rate. Likewise, adding costs to the balance changes how much you owe; it does not make those costs vanish.
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Rates, payments, and the second-mortgage trade-off
A home equity loan usually has a fixed interest rate, but the CFPB notes that it may be fixed or adjustable; check the specific offer. A fixed rate makes the loan’s rate more predictable, while an adjustable rate can change. The first mortgage’s terms remain in place when you keep it, so your monthly housing debt includes its payment plus the home equity loan payment.
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One free scan finds every outdated or missing driver and matches the right update for your exact hardware.Free scan · exact hardware matchA cash-out refinance replaces the first mortgage with a new, larger one. Compare the new rate and payment against your current mortgage’s rate, remaining balance, and remaining term. A new loan can lower the monthly payment by extending repayment, for example, while still increasing the total interest paid over time. Do not judge affordability or cost from a monthly payment alone: compare the full terms and the period you expect to keep the loan.
If you receive offers on different dates, rate movement may account for part of the difference. The CFPB says mortgage rates can change daily. That is another reason to compare current, dated Loan Estimates rather than a lender’s general advertised rate.
There is no rate comparison that settles the question without the balance and repayment terms. With a refinance, the new rate affects the full replacement mortgage. With a home equity loan, the first mortgage’s rate remains unchanged, but the added loan has its own rate and payment. If one offer has an adjustable rate, account for the possibility that its rate and payment may change; do not assume that a standardized estimate using an unchanged rate is a worst-case scenario.
Risks of borrowing against your home
Both loans put the home up as collateral
A home equity loan is secured by the house, and failure to repay can lead to foreclosure. A cash-out refinance is also a mortgage secured by the home. Missing payments on either kind of borrowing can therefore threaten the property, not just affect a credit-card balance. Consider whether the new obligation remains manageable if income, expenses, or other circumstances change.
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Using cash-out refinancing to pay off credit cards or other debts may reduce interest expense in a particular case, but it converts those previously unsecured obligations into debt secured by your house. The lower cost, if the offer and repayment plan actually produce one, comes with more serious consequences if you cannot pay.
In a 2025 release about its study of cash-out refinance borrowers from 2014 through 2021, the CFPB reported that borrowers often used proceeds to pay down credit-card and auto-loan debt. Their credit scores initially improved sharply and later gradually worsened. These are group-level observations, not a forecast for an individual borrower or evidence that consolidation will improve your finances. Build a repayment plan that addresses the debt’s cause as well as its balance.
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Include the cost of extracting the cash in your debt-consolidation comparison. A lower rate or payment on a newly secured debt does not by itself establish that the overall decision is less costly or safer. Consider what happens if you cannot keep up with the new obligation: credit-card debt may have different consequences from a debt secured by your house. The CFPB’s observations describe a group over time and should not be read as a promise of a particular credit-score outcome for you.
Is a HELOC the same as a home equity loan?
No. A home equity loan provides a lump sum; a HELOC is a revolving line of credit, typically with a variable rate. A HELOC is a separate product, not another name for a home equity loan. The CFPB notes that HELOC plans may carry application, origination, appraisal, title, other closing, inactivity, annual, cancellation, or rate-conversion fees, depending on the plan. Review the actual agreement and Loan Estimate for the product you are considering; do not assume every listed fee applies. See the CFPB’s overview of loan types related to a HELOC for the distinction.
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A HELOC can be an adjacent alternative if you need access to a revolving line rather than one lump sum, but it is not interchangeable with the two options compared here. The fee list above is specific to HELOC plans; it is not a claim that every home equity loan or refinance has those same charges. For any product you consider, check the actual offer documents and terms.
Independent reader supportYour contribution helps us test, update, and keep practical guides available for everyone.A practical offer-comparison checklist
- Write down your current mortgage. Record its remaining balance, rate, payment, and remaining term so you can see what a refinance would replace and what a home equity loan would leave intact.
- Request dated, written offers. Obtain Loan Estimates for the cash-out refinance and home equity loan options you are considering, close together in time where possible.
- Check the same borrowing need. Compare offers that provide the amount of cash you actually need, and note the loan amount and cash to close for each.
- Compare payment and rate details. Review principal and interest, total monthly payment, applicable mortgage insurance, whether each rate is fixed or adjustable, and the possibility of payment changes.
- Inspect fees and credits. Find upfront loan costs, lender credits, and how any costs described as having “no closing costs” are paid. Ask the lender to explain differences you cannot reconcile.
- Compare “In 5 years” and your own timeline. Use the Loan Estimate’s interest-and-fee comparison, understand its adjustable-rate assumption, and consider how long you expect to keep the loan or loans.
- Stress-test the payment and collateral risk. For a home equity loan, add its payment to your existing mortgage. For either option, consider whether you can repay if your finances change, remembering that the home secures the debt.
Frequently asked questions
Is a cash-out refinance cheaper than a home equity loan?
Not automatically. A refinance replaces your entire first mortgage with a larger loan, while a home equity loan keeps the first mortgage in place and adds another secured payment. Compare actual Loan Estimates, including rate, fees, credits, cash to close, payment, and the time you expect to keep the borrowing. The lower advertised rate alone does not determine which costs less.
Can I keep my current mortgage rate and take out a home equity loan?
A home equity loan generally lets you keep your existing first mortgage and its rate, while adding a separate loan secured by your home. The new loan has its own rate, payment, and costs. A cash-out refinance, by contrast, pays off and replaces the existing mortgage.
What should I compare on a Loan Estimate?
Review the loan amount, interest rate, principal-and-interest payment, mortgage insurance if applicable, total monthly payment, upfront loan costs, lender credits, and cash to close. The CFPB also points borrowers to the “In 5 years” interest-and-fee figure in the Comparisons section. Compare the offers for the same borrowing need and account for both payments when retaining a first mortgage and adding a home equity loan.
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No. Costs may be offset by a lender credit tied to a higher interest rate, or added to the loan balance. Either approach changes the economics: a higher rate may cost more over time, while rolled-in costs increase what you owe and can reduce home equity. Ask the lender how the costs are being paid.
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What are the risks of borrowing against my home?
Both a cash-out refinance and a home equity loan are secured by the home. Failure to repay can put the property at risk of foreclosure. If cash-out refinancing pays credit-card or other previously unsecured debt, that borrowing becomes secured by the house. Consider the collateral risk as well as any potential interest savings.
Is a HELOC another name for a home equity loan?
No. A home equity loan is a lump-sum loan; a HELOC is a revolving credit line, typically with a variable rate. HELOCs may have fees that vary by plan, so review the actual agreement and offer documents if you are considering one.
Frequently Asked Questions
Is a cash-out refinance cheaper than a home equity loan?
Not automatically. A refinance replaces your entire first mortgage with a larger loan, while a home equity loan keeps the first mortgage in place and adds another secured payment. Compare actual Loan Estimates, including rate, fees, credits, cash to close, payment, and the time you expect to keep the borrowing. The lower advertised rate alone does not determine which costs less.
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Can I keep my current mortgage rate and take out a home equity loan?
A home equity loan generally lets you keep your existing first mortgage and its rate, while adding a separate loan secured by your home. The new loan has its own rate, payment, and costs. A cash-out refinance, by contrast, pays off and replaces the existing mortgage.
What should I compare on a Loan Estimate?
Review the loan amount, interest rate, principal-and-interest payment, mortgage insurance if applicable, total monthly payment, upfront loan costs, lender credits, and cash to close. The CFPB also points borrowers to the “In 5 years” interest-and-fee figure in the Comparisons section. Compare the offers for the same borrowing need and account for both payments when retaining a first mortgage and adding a home equity loan.
Does “no closing cost” mean there are no fees?
No. Costs may be offset by a lender credit tied to a higher interest rate, or added to the loan balance. Either approach changes the economics: a higher rate may cost more over time, while rolled-in costs increase what you owe and can reduce home equity. Ask the lender how the costs are being paid.
What are the risks of borrowing against my home?
Both a cash-out refinance and a home equity loan are secured by the home. Failure to repay can put the property at risk of foreclosure. If cash-out refinancing pays credit-card or other previously unsecured debt, that borrowing becomes secured by the house. Consider the collateral risk as well as any potential interest savings.
Is a HELOC another name for a home equity loan?
No. A home equity loan is a lump-sum loan; a HELOC is a revolving credit line, typically with a variable rate. HELOCs may have fees that vary by plan, so review the actual agreement and offer documents if you are considering one.
The Bottom Line
A cash-out refinance replaces your current mortgage; a home equity loan generally preserves it and adds a second secured payment. Compare dated Loan Estimates for the same cash need, accounting for the full loan terms, fees and credits, payment structure, your expected holding period, and the risk to your home. Neither option is universally cheaper.
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