First mortgage versus second lien
A cash-out refinance replaces the existing first mortgage with a new, larger mortgage. A home equity loan is generally a separate second mortgage alongside the existing first mortgage.
Payments, rates, and costs
Each option may have different rate structures, payments, closing costs, and total borrowing costs. The existing first-mortgage rate can be especially important when comparing the alternatives.
Match the structure to the purpose
A homeowner may compare a defined lump sum, the desired repayment structure, the existing mortgage, and estimated costs. No option is a universal winner.
Compare the structures
| Consideration | Cash-out refinance | Home equity loan |
|---|---|---|
| Existing first mortgage | Replaced by a new first mortgage | Generally remains in place |
| Access to funds | Generally a lump sum at closing | Generally a lump sum second mortgage |
| Payments and rates | One new mortgage payment; terms depend on the loan | A separate lien and payment; rate structure depends on the product |
| Key comparison | Consider the cost of replacing the existing mortgage | Consider combined payments, costs, and the existing mortgage rate |
Frequently asked questions
Does a home equity loan preserve my first mortgage?
It generally does because it is a separate second lien, but details depend on the provider and product.
Which has lower total cost?
That depends on the individual rates, terms, fees, balances, and time horizon; a complete comparison is needed.