Home equity loan vs cash-out refinance: which costs less? The math on $60,000 at today's 7.32% rate

8 min read · LenderMatch Learn

A home equity loan adds a second loan and leaves your first mortgage, and its rate, alone. A cash-out refinance replaces your mortgage with a bigger one and pays you the difference. If your current rate is well below today’s 7.32% average (Freddie Mac 30-year fixed, week of October 22, 2026), a home equity loan usually costs less, because only the new money is borrowed at today’s rates.

A cash-out refinance tends to come out ahead when your current rate is close to or above today’s. Below: the two side by side, $60,000 borrowed both ways, and the rate at which the answer flips. Rates and fees differ by lender, so LenderMatch lets you compare offers from several lenders once you know which route fits.

What is the difference between a home equity loan and a cash-out refinance?

Both turn equity into a lump sum secured by your home. The difference is what happens to the mortgage you already have.

• Home equity loan. The CFPB says you receive a lump sum, usually at a fixed rate that will not change. Your first mortgage stays as it is, so you make two payments. More in what is a home equity loan.
• Cash-out refinance. The CFPB describes it as replacing your mortgage with a bigger one and taking the difference in cash: one loan, one payment, a new rate on the whole balance. The steps are in how a cash-out refinance works.

Home equity loan vs cash-out refinance side by side

Limits are for a one-unit main home. Sources listed at the end of this article.

Is a home equity loan better than a cash-out refinance? A $60,000 example

Say your home is worth $400,000. You owe $200,000 at 3.50% with 24 years left, a principal and interest payment of about $1,027 a month, and you need $60,000.

• Home equity loan: $60,000 over 15 years at an assumed 8.25% fixed rate. This is an illustration, not a published average; your rate depends on your credit, your combined loan-to-value and the lender.
• Cash-out refinance: a new 30-year loan at 7.32%, Freddie Mac’s average for the week of October 22, 2026. To pay off $200,000, hand you $60,000 and cover 3% closing costs, the loan is $268,041.

Calculated by LenderMatch, principal and interest only, excluding taxes and insurance. The 8.25% home equity loan rate is an assumption for illustration. Closing costs use the low end of Freddie Mac’s 3% to 6% range. Illustrations, not quotes.

The home equity loan path costs $231 less a month and about $40,600 less in interest over five years. $200,000 stays at 3.50% and only $60,000 is borrowed at 8.25%, a blended 4.60% on all $260,000; the refinance moves all of it to 7.32% and restarts a 30-year clock. The blended rate calculator runs this with your own balances.

When is a cash-out refinance better than a home equity loan?

Change one number: your current rate is 7.50%, not 3.50%. Your payment on $200,000 would be about $1,499, plus $582 for the home equity loan: $2,081 a month against $1,841 for the refinance. Your blended rate would be 7.67%, so one loan at 7.32% lowers the rate on everything you owe.

In this example the break-even is a current rate of about 7.04%: below it, the home equity loan gives the lower average rate; above it, the refinance does (before closing costs). Part of the refinance’s lower payment comes from stretching the debt over 30 years, which adds interest over time. A cash-out refinance can also make sense when:

• You want one payment and one lender instead of two.
• You were going to refinance anyway, for example to change your term or drop mortgage insurance; see when refinancing makes sense.
• You plan to stay long enough to earn back the closing costs.

Freddie Mac’s latest weekly averages are on our mortgage rates page.

Home equity loan rates vs cash-out refinance rates

Comparing the two rates directly can mislead. The CFPB explains that a second mortgage is repaid after the first if a home is sold to cover debts, so second mortgages often carry higher rates. But the home equity loan rate applies only to the new money, while the refinance rate applies to everything you owe. The CFPB also lists the cash-out refinance’s drawbacks as generally higher closing costs, a longer time to pay off your mortgage and a rate that may be higher than your current one.

Closing costs: home equity loan vs cash-out refinance

Freddie Mac says to expect refinancing costs of 3% to 6% of your loan principal, from appraisal and title to origination and recording fees. That applies to the whole new loan: in the example, $8,041 to get $60,000 out. A VA cash-out refinance also carries a funding fee of 2.15% the first time you use the benefit and 3.3% after that, unless you are exempt (VA.gov, updated October 5, 2026).

Home equity loan costs vary more. The CFPB says they may have upfront fees and costs. One large national bank says there are no closing costs in most cases, with exceptions such as loans over $500,000, investment properties and co-ops. Ask each lender for its full list of fees before you compare. Home equity closing costs breaks down each fee.

How much can you borrow with each? LTV limits

Both use the same basic formula: your home’s value times the maximum loan-to-value, minus what you owe. The limits differ.

• Conventional cash-out refinance: Freddie Mac caps a one-unit main home at 80%, and the cap covers any second loan you keep behind the new mortgage.
• FHA cash-out refinance: 80%, lowered from 85% for case numbers assigned on or after September 1, 2019 (HUD).
• VA cash-out refinance: up to 100% of the home’s value for eligible veterans (VA.gov). See VA cash-out vs HELOC.
• Home equity loan: set by each lender as a combined loan-to-value (CLTV) limit covering your mortgage and the new loan. One large national bank goes up to 89.99%, depending on credit, property type, occupancy, lien position and loan amount.

On the $400,000 home with $200,000 owed, an 80% limit leaves up to $120,000 before costs, and an 89.99% limit about $160,000. Run your own numbers in the home equity calculator, or read how much equity you can borrow. In Texas, the state constitution caps a home equity loan, and a cash-out refinance of a homestead, at 80% of the home’s value including all other debt on it; see Texas cash-out refinance rules.

Home equity loan vs cash-out refinance pros and cons

Home equity loan. Pros: your first mortgage rate stays; costs are often lower; a fixed payment with a set end date. Cons: two payments; usually a higher rate than a first mortgage; interest on the full amount from day one; more debt on the home, which the lender can foreclose on if you cannot repay (CFPB).

Cash-out refinance. Pros: one payment; a first-mortgage rate; higher limits for VA borrowers; can lower your rate if yours is above today’s. Cons: your whole balance moves to today’s rate; closing costs on the whole loan; it may take longer to pay off your mortgage (CFPB).

If you would rather draw money in stages, a HELOC is the third option; see cash-out refinance vs HELOC.

Is either one better for taxes?

The rules are close. IRS Publication 936 says home equity loan interest is deductible only if the money is used to buy, build or substantially improve the home that secures it. A refinance counts as home acquisition debt only up to the old mortgage balance just before refinancing (plus cash used to improve the home), and points paid to refinance are generally deducted over the life of the loan. For your own return, ask a tax professional.

Should I do a home equity loan or cash-out refinance?

1. Compare your rate with today’s. Well below 7.32%? A home equity loan usually wins. Near or above it? Price a cash-out refinance.
2. Work out your blended rate. Use the formula above or the calculator, and compare it with refinance offers.
3. Count the closing costs. Divide the refinance’s extra costs by its monthly savings to see how many months it takes to earn them back.
4. Get more than one quote. Rates and fees differ by lender; does rate shopping hurt your credit explains how several mortgage inquiries are scored.

Frequently asked questions

Is a cash-out refinance the same as a home equity loan?

No. A cash-out refinance replaces your mortgage with a larger one, so you have one loan at a new rate. A home equity loan is added behind your mortgage, so you keep your current rate and make two payments.

Which has a lower rate, a home equity loan or a cash-out refinance?

Usually the cash-out refinance, because it is a first mortgage. But that rate applies to your whole balance, so a home equity loan can still cost less overall when your current rate is low.

Can you get a home equity loan after a cash-out refinance?

Yes, if you still have equity under the lender’s combined loan-to-value limit. After a cash-out refinance to 80% of your home’s value, there may be little room until you pay down the loan or the home gains value.

Which has higher closing costs?

Usually the cash-out refinance: Freddie Mac puts refinance costs at 3% to 6% of the whole new loan. Home equity loan costs vary, and some lenders cover most of them.

Is a VA cash-out refinance better than a home equity loan?

It depends on your current rate. A VA cash-out refinance can reach 100% of the home’s value but replaces your mortgage and charges a funding fee of 2.15% on first use (3.3% after) unless you are exempt.

Compare cash-out and home equity offers from several lenders →