Cash-Out Refinance vs. Home Equity Loan

As interest rates, home values, and borrowing options continue to shift in 2026, homeowners are asking a familiar question:

“Should I use a cash-out refinance or a home equity loan?”

Both options let you tap into the value you’ve built in your home — but they work very differently. The right choice depends on your interest rate, equity amount, financial goals, and how long you plan to stay in the home.

This guide breaks down the differences, pros, cons, examples, and how to pick the best option in 2026 — without overpaying.

Key Takeaways

✅ Cash-out refinances replace your entire mortgage, typically offering lower rates but higher closing costs.

✅ Home equity loans are second mortgages, offering fixed rates with fewer fees and no need to touch your current mortgage.

✅ Cash-out refinances work best when your current rate is high — or you want to change loan terms.

✅ Home equity loans shine when you already have a low rate on your first mortgage that you want to keep.

💡 Pro Tip: Because lender pricing can vary widely for cash-out refinances and home equity loans, it’s important to get multiple offers and compare them side by side.

What Is a Cash-Out Refinance? 🏡💰

A cash-out refinance replaces your existing mortgage with a new, larger mortgage — and you take the difference in cash.

How it works:

1. New loan pays off your old mortgage

2. You borrow more than your current balance

3. You pocket the extra cash

Example:

• Home value: $500,000

• Current mortgage: $300,000

• New loan at 80% LTV: $400,000

• Cash received: $100,000 (minus closing costs)

💡 Pro Tip: Pricing can vary significantly for the same cash-out loan between lenders. Not comparing your options side by side could leave thousands of dollars on the table.

What Is a Home Equity Loan? 🏦

A home equity loan is a second mortgage. Your existing mortgage stays exactly as-is, and you take out a new loan based on your equity.

How it works:

• Lump-sum loan

• Fixed interest rate

• Paid back in monthly installments

• Your current mortgage rate doesn’t change

Example:

• Home value: $500,000

• Current balance: $300,000

• Lender allows 85% total LTV → $425,000 cap

• Max home equity loan: $125,000

Cash-Out Refinance vs. Home Equity Loan: Side-by-Side Comparison

Which Option Makes More Sense in 2026?

Mortgage rate trends in 2026 are shaping the answer.

If you locked a low rate in 2020–2022 (2–4%)…

👉 A home equity loan may be a better option.

Refinancing would replace your ultra-low rate with a higher one.

If your current rate is over 6%…

👉 A cash-out refinance might save you money overall.

You may be able to lower your rate and access cash.

If you need a large amount ($75,000+):

👉 Cash-out refinances usually offer:

• Better pricing

• Higher borrowing limits

• Lower monthly payment spread over 30 years

If you need a small amount ($10,000–$40,000):

👉 Home equity loans typically:

• Cost less upfront

• Have faster approval

• Offer clearer repayment terms

How Much Can You Borrow?

Cash-Out Refinance (Typical Limits)

• Conventional: Up to 80% LTV

• FHA: Up to 80% LTV

• VA: 80–100% LTV (varies by lender)

• Jumbo: 60–70% LTV

• Actual requirements vary by lender.

Home Equity Loan (Typical Limits)

• Lenders usually allow 80–90% combined LTV (first mortgage + equity loan).

Example

Home value: $600,000

Current mortgage: $360,000

Max total LTV allowed: 85% → $510,000

Max home equity loan: $150,000

Cost Differences (2026 Reality)

Cash-Out Refinance Costs

• 2–5% in closing costs (varies by lender)

• Appraisal often required

• Points and lender fees vary widely

• You may need to pay PMI if above 80% LTV

Home Equity Loan Costs

• 1–2% closing costs(varies by lender)

• Could skip appraisal with certain lenders

• Often has higher interest rates than first-mortgage products

• May carry a prepayment penalty (varies by lender)

Cost comparison example

Need $80,000?

• Cash-out refi: Lower rate but higher upfront cost

• Home equity loan: Higher rate but low upfront cost

When a Cash-Out Refi May be Better

Choose a cash-out refinance if:

✔ Your current mortgage rate is higher than today’s rates

✔ You want to consolidate multiple debts into one

✔ You need a large lump sum

✔ You want a longer repayment term for lower monthly payments

✔ You want to remove PMI by reappraising into a lower LTV

Especially helpful for:

• Major renovations

• Large medical or tuition expenses

• Paying off high-interest credit cards

• Resetting your loan structure

When a Home Equity Loan May be Better

Choose a home equity loan if:

✔ You locked a low mortgage rate in 2020–2022

✔ You only need a modest amount of cash

✔ You prefer fixed payments and clear payoff timing

✔ You want minimal closing costs

✔ You don’t want to restart your amortization schedule

Especially useful for:

• Roof repairs

• Mid-size remodels

• Car purchase

• Medical bills

• Emergency fund needs

💡 Pro Tip: If you also want access to future funds, consider a HELOC — a revolving line of credit — instead of a fixed home equity loan.

Real-World Examples: Which One Wins?

Example 1: Refinancing a 3% Mortgage

• Current rate: 3%

• Need $60,000

• Cash-out rate: 6.5%

• Equity loan rate: 8%

👉 Winner: Home equity loan

Refinancing a 3% mortgage would dramatically increase your total borrowing cost.

Example 2: Refinancing a 7% Mortgage

• Current rate: 7%

• Need $80,000

• Cash-out rate: 6%

• Equity loan rate: 8.5%

👉 Winner: Cash-out refinance

Your new lower rate offsets the cost, plus you get the cash you need.

Example 3: Need $25,000 for Home Repairs

• Cash-out closing costs: $7,000

• Home equity loan closing costs: $800

👉 Winner: Home equity loan

Smaller amounts favor equity loans due to lower fees.

How Fincast Helps You Choose the Right Option 🚀

Whether you’re comparing a home equity loan, a cash-out refinance, or both, pricing differences across lenders can be huge.

Here’s how Fincast gives you clarity after you receive a Loan Estimate from any lender once you apply:

1️⃣ Upload your Loan Estimate — no extra credit pull

2️⃣ Fincast automatically analyzes your rate, fees, points, LTV, and PMI/MIP

3️⃣ Vetted lenders privately compete to beat your offer

4️⃣ You choose the best loan — or confirm your lender is already competitive

💡 Pro Tip: Home equity loans and cash-out refinances often price very differently across lenders — benchmarking is essential before deciding.

FAQs

1. Which has lower interest rates — a cash-out refi or a home equity loan?

Cash-out refinances may have lower rates since they are a first lien on the property, but actual rates vary by borrower profile and lender.

2. Does a home equity loan affect my current mortgage rate?

No — your first mortgage stays exactly the same.

3. Can I get both options at the same time?

Yes, but lenders may limit your combined LTV.

4. Is the cash I receive taxable?

Cash from equity borrowing is usually not taxable income, but always check with your tax advisor.

5. Does either option require an appraisal?

Most cash-out refinances do, but some home equity loans may waive it depending on the lender.

Bottom Line

Both cash-out refinances and home equity loans can help you tap into your home’s value — but the best choice in 2026 depends on your current mortgage rate, equity, and financial goals.

You’re in a strong position when:

✅ You know your current rate and total equity

✅ You compare the long-term cost of each option

✅ You understand your repayment timeline and cash needs

Pro Tips (Save These!)

💡 Keep your low-rate mortgage if possible

📉 Refinance only when today’s rate is meaningfully lower

📊 Compare total cost, not just interest rate

📈 Watch closing costs — they vary widely

🚀 Use Fincast to benchmark offers before committing

Action Checklist

• Calculate your equity and current mortgage rate

• Decide how much cash you actually need

• Estimate cash-out vs. home equity loan payments

• Request a Loan Estimate from your lender

• Upload your Loan Estimate to Fincast

• Compare competing loan offers

• Choose the loan that best fits your 2026 financial goals

👉 Ready to see which loan saves you more in 2026?

Upload your Loan Estimate to Fincast — where vetted lenders compete to give you the best deal, whether you’re refinancing or tapping your equity.