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

A cash-out refinance replaces your existing mortgage with one new, larger loan and pays you the difference in cash. A home equity loan leaves your existing mortgage in place and adds a separate second loan — a one-time lump sum at a fixed rate, with its own monthly payment.

Is a home equity loan or cash-out refinance better?

A home equity loan is usually better when your current mortgage rate is low, because it leaves that rate untouched and only adds a second payment. A cash-out refinance is usually better when today's rates are at or below your current rate, because you can refinance the whole balance and take cash out at the same time.

Cash-out refinance vs. home equity loan

Q: Does a home equity loan have a fixed rate?

Yes. A home equity loan is almost always a fixed-rate, lump-sum loan with equal monthly payments over a set term, which makes it more predictable than a variable-rate HELOC.

Q: Which has lower closing costs?

A home equity loan usually has lower closing costs than a cash-out refinance. A cash-out refinance typically costs about 2%–6% of the entire new loan, while a home equity loan's costs are based only on the smaller second-loan amount.

Reviewed by the HomeEquityWise Editorial Team · Last updated May 2026 · How we calculate these numbers

Both give you a fixed-rate lump sum from your equity — the difference is what happens to your current mortgage. A cash-out refinance replaces your existing mortgage with one new, larger loan. A home equity loan leaves your mortgage alone and stacks a separate second loan on top. The rule of thumb: if your current mortgage rate is low, a home equity loan protects it; if today's rates are at or below your current rate, a cash-out refinance can lower everything and give you cash at once.

Cash-out refinance: one new loan replaces your mortgage; resets the rate on your whole balance; higher closing costs.
Home equity loan: a second fixed-rate loan beside your mortgage; keeps your existing rate; lower closing costs.
Both deliver a fixed rate and a predictable payment — unlike a variable-rate HELOC.
The decider is your current rate vs. today's rate.
Compare in the cash-out refinance calculator and the home equity calculator.

What each one actually is

A cash-out refinance pays off your existing mortgage and replaces it with a new, larger one. You walk away with a single fixed-rate loan covering both your old balance and the cash you took out — and a single monthly payment. The trade-off is that the rate on your entire balance resets to today's rate.

A home equity loan (sometimes called a "second mortgage") sits behind your existing mortgage. You borrow a one-time lump sum at a fixed rate and repay it in equal installments over a set term, while your original mortgage keeps its rate and payment. You end up with two payments, but your low first-mortgage rate is protected.

At a glance

Feature	Cash-out refinance	Home equity loan
Effect on current mortgage	Replaces it	Keeps it as-is
Number of payments	One	Two
Rate type	Fixed (new rate on whole balance)	Fixed (only on the second loan)
How you get the money	Lump sum	Lump sum
Closing costs	~2%–6% of the full new loan	Lower — based on the smaller amount
Protects a low existing rate?	No	Yes
Best for	Today's rate ≤ your current rate	A low current rate worth keeping

Worked example

Your home is worth $400,000, you owe $180,000 at 3.5%, and you need $40,000.

Home equity loan: you keep the $180,000 at 3.5% and add a $40,000 second loan at, say, 7.5% fixed. You now have two payments, but only the new $40,000 carries the higher rate — your big balance stays cheap.

Cash-out refinance: you replace the $180,000 with a new $220,000 loan at today's rate (say 6.5%). Simpler — one payment — but you just moved $180,000 from 3.5% up to 6.5%. That extra interest on the old balance usually dwarfs the convenience. With a low locked-in rate like 3.5%, the home equity loan almost always wins. Check the break-even in the cash-out refinance calculator.

When to choose each

Choose a cash-out refinance if today's rates are at or below your current rate, you'd rather have one payment than two, or you want to change your loan term at the same time. Choose a home equity loan if your current mortgage rate is low and worth protecting, you want lower closing costs, or you only need a modest amount and don't want to disturb your main mortgage.

Frequently asked questions

What's the difference?

A cash-out refinance replaces your mortgage with one new, larger loan and pays you the difference. A home equity loan keeps your mortgage and adds a separate fixed-rate second loan with its own payment.

Which is better?

A home equity loan is usually better when your current rate is low, since it leaves that rate alone. A cash-out refinance is usually better when today's rates are at or below your current rate, letting you refinance the whole balance and take cash out together.

Does a home equity loan have a fixed rate?

Yes — it's almost always a fixed-rate lump sum with equal payments over a set term, which makes it more predictable than a variable-rate HELOC.

Which has lower closing costs?

A home equity loan, generally. A cash-out refinance costs about 2%–6% of the whole new loan, while a home equity loan's costs are based only on the smaller second-loan amount.

Sources: CFPB — What is a cash-out refinance? · CFPB — Home equity loans · our methodology. Educational only — not financial advice; confirm figures with a licensed lender.