Home Equity Home Equity Loans Cash-Out Refinance vs. Home Equity Loan: Which Is Better? 3 people contribute to this content Written by Catherine Collins Written by Catherine Collins Expertise: Budgeting, mortgages, home equity, credit, debt, investing, personal loans, small business, entrepreneurship, student loans Catherine Collins is a personal finance writer and author with more than 10 years of experience writing for top personal finance publications. As a mother to boy/girl twins, she is passionate about helping women and children learn about money and entrepreneurship. Cat is also the co-host of the Five Year You podcast. Learn more about Catherine Collins Edited by Amanda Hankel Edited by Amanda Hankel Expertise: Writing, editing, digital publishing Amanda Hankel is a managing editor at LendEDU. She has more than seven years of experience covering various finance-related topics and has worked for more than 15 years overall in writing, editing, and publishing. Learn more about Amanda Hankel Reviewed by Chloe Moore, CFP® Reviewed by Chloe Moore, CFP® Expertise: Equity compensation, home ownership, employee benefits, general finance Chloe Moore, CFP®, is the founder of Financial Staples, a virtual, fee-only financial planning firm based in Atlanta, Georgia, and serving clients nationwide. Her firm is dedicated to assisting tech employees in their 30s and 40s who are entrepreneurial-minded, philanthropic, and purpose-driven. Learn more about Chloe Moore, CFP® Written by Catherine Collins Written by Catherine Collins Expertise: Budgeting, mortgages, home equity, credit, debt, investing, personal loans, small business, entrepreneurship, student loans Catherine Collins is a personal finance writer and author with more than 10 years of experience writing for top personal finance publications. As a mother to boy/girl twins, she is passionate about helping women and children learn about money and entrepreneurship. Cat is also the co-host of the Five Year You podcast. Learn more about Catherine Collins Edited by Amanda Hankel Edited by Amanda Hankel Expertise: Writing, editing, digital publishing Amanda Hankel is a managing editor at LendEDU. She has more than seven years of experience covering various finance-related topics and has worked for more than 15 years overall in writing, editing, and publishing. Learn more about Amanda Hankel Reviewed by Chloe Moore, CFP® Reviewed by Chloe Moore, CFP® Expertise: Equity compensation, home ownership, employee benefits, general finance Chloe Moore, CFP®, is the founder of Financial Staples, a virtual, fee-only financial planning firm based in Atlanta, Georgia, and serving clients nationwide. Her firm is dedicated to assisting tech employees in their 30s and 40s who are entrepreneurial-minded, philanthropic, and purpose-driven. Learn more about Chloe Moore, CFP® show more Jan 29, 2026 If you’re staring at your dated bathroom and ready to start demolishing the tile yourself, pause for a second. You might have enough home equity to pay a professional to do it for you. Right now, many people are sitting on more home equity than ever before, thanks to home value appreciation over the past few years. If you want to tap into your home equity to make extensive renovations, consolidate high-interest debt, or purchase a second property, the most common ways to access it are to take out a home equity loan or to complete a cash-out refinance. This article explains the main differences between these two options so you can make an informed choice. Table of Contents Cash-out refinance vs. home equity loan What is a home equity loan? Who it’s best for How to qualify What is a cash-out refinance? Who it’s best for How to qualify What are the best home equity loan companies? Lending Tree Navy Federal Credit Union Spring EQ What are the best cash-out refinance companies? SoFi Rocket Mortgage Navy Federal Credit Union What are some alternatives to home equity loans and cash-out refinances? HELOC Personal loan 0% APR credit card Reverse mortgage Cash-out refinance vs. home equity loan A cash-out refinance is when you get a new, larger mortgage to replace your current one and withdraw the difference in cash. Homeowners typically do this when they can secure a lower interest rate on their mortgage. As of January 2026, mortgage rates hover around 6%. So, many homeowners might be considering this option. A home equity loan, on the other hand, is when you take out a loan using your home as collateral. The average home equity loan rate in January 2026 is 7.56%. Homeowners who already have low mortgage interest rates and do not want to refinance typically choose this option. To decide which one is best, there are a few things to consider: Cash flow: When you take out a home equity loan, you pay for your mortgage plus the home equity loan payment. A cash-out refinance only requires one payment. Interest rate: If you have a low mortgage interest rate, it might not be worth it to refinance. Fees: Both a cash-out refinance and a home equity loan come with fees and interest costs. Reviewing them ahead of time can help you decide if one option is more affordable than the other. Risk: A home equity loan uses your home as collateral. So, if you’re not able to make your payments, the bank can foreclose on your home. The same is true if you’re not able to make the payments on your mortgage. The table below has a more in-depth comparison of these two products. Cash-out refinanceHome equity loanCredit scoreTypically 620+Typically mid-600sApplication processFollows the standard mortgage processLess paperwork than a full refinance, but still requires credit review and underwritingType of interest ratesVariable or fixed, typically lower than a home equity loanTypically fixed rate, lower than credit cards or personal loans, but higher than conventional mortgagesEquity requiredVaries by lender, but typically a max LTV of 80%Varies by lender, but typically a max LTV of 75% to 85%Tax benefitsInterest may be deductible if you use the cash-out for home improvementInterest may be deductible if you use it to improve your homeClosing costsUp to 6% of the loan amount1% to 5% of the loan amountDTI ratioBelow 43%Below 43%FeesMortgage closing costs and title feesOrigination and closing feesPaymentsOne monthly paymentTwo monthly payments: your mortgage and the home equity loan What is a home equity loan? As mentioned, a home equity loan is a type of loan where you borrow against your home’s equity. Your house is the collateral for the loan, and because of that, homeowners typically secure competitive interest rates. Sometimes a home equity loan is called a second mortgage. Borrowers repay home equity loans in equal monthly payments over terms ranging from five to 30 years, although this can vary by lender. Home equity loans typically have fixed interest rates, and borrowers will receive a lump sum once the loan is approved and funded. Pros Interest rates are typically lower than those of other options, such as personal loans and credit cards Equal monthly payments make it easier to budget Helps leverage your equity without restarting your primary mortgage Cons Not making your payment could result in the lender foreclosing on your home You will add an additional monthly payment to your monthly budget Come with fees and closing costs Who it’s best for A home equity loan is best for homeowners who: Currently have a low mortgage interest rate and want to tap into equity without refinancing. Have a solid emergency fund and consistent income, who are not worried about missing payments. Want to consolidate high-interest credit card debt, and have made the necessary behavioral changes to prevent high-interest debt in the future. How to qualify To qualify for a home equity loan, homeowners need a stable income history, good credit, and sufficient home equity. Lenders will typically conduct a home appraisal to confirm your home’s value and the equity available in it. You also must have a debt-to-income ratio below 43% to show you can handle an additional monthly payment. When determining if a home equity loan payment fits into your budget, you can use a calculator to estimate the payment. There are some general rules of thumb that can help you determine how much you can afford (like the 28/36 rule), but you should consider your personal situation and how this extra payment will impact your long-term financial goals.The 28/36 rule is a simple guideline that says your housing payment should take up no more than 28% of your gross income, and all your monthly debts combined should stay under 36%. Chloe Moore , CFP® What is a cash-out refinance? A cash-out refinance is when you apply for a new mortgage for an amount greater than your current mortgage. Then, you take out the difference in cash. Applying for a cash-out refinance is a similar process to a typical mortgage application, where you’ll have a home appraisal, closing costs, and other fees. Pros You’ll have one monthly payment rather than making a mortgage payment and an additional loan payment Can potentially get a lower interest rate than your current mortgage, depending on the market Cons You get a brand new mortgage, which means you restart the clock if you go from a 30-year mortgage to another 30-year mortgage Required fees and closing costs could take years to recoup Could lose your low mortgage interest rate if you refinance to a higher rate Who it’s best for A cash-out refinance is best for homeowners who: Currently have a mortgage interest rate above or at the current interest rate levels. Have improved your finances and raised your credit score, as you might qualify for a lower interest rate. Want to roll multiple debts into one and consolidate them into one payment. How to qualify The qualifications for a cash-out refinance are similar to those required to get a mortgage. For example, you’ll need a debt-to-income ratio of below 43%, good credit, and proof of steady income. Additionally, you’ll need sufficient equity in your home to justify a cash-out refinance, an amount which varies by lender. A big factor when deciding between a cash-out refinance and a home equity loan is the current interest rate on your mortgage. If your rate is significantly lower than current rates, I wouldn’t recommend refinancing the mortgage. You should also consider the remaining term of your existing loan and how quickly you could pay off the amount you’re looking to borrow. Chloe Moore , CFP® What are the best home equity loan companies? Consumers have many options when it comes to home equity loan companies. Here are some of our top recommendations: Lending Tree Best Marketplace 4.5 /5 View Rates Why we recommend it Lending Tree is a loan marketplace that allows borrowers to get offers from multiple home equity loan companies. Homeowners can get home equity loans up to $2 million. Most Lending Tree partners require a minimum credit score of 620, a DTI ratio below 43%, and an LTV ratio below 95%, but it will vary by lender. Navy Federal Credit Union Best for Military Members 3.9 /5 View Rates Why we recommend it Navy Federal Credit Union offers home equity loans up to $500,000 with no closing costs, no origination fees, and no application fees. Plus, homeowners can borrow up to 100% of their home’s equity. The main drawback is that these are limited to Navy Federal members, who have to meet specific qualifications, like being a member of the military or working for the Department of Defense. Spring EQ Best for Accessing 90% Equity 4.1 /5 View Rates Why we recommend it Spring EQ made the list because it allows homeowners to access up to 95% of their home’s equity. Rates start at 9.50% and homeowners can borrow up to $500,000 with terms ranging from 5 – 30 years. Another benefit if you can take out a home equity loan on a second home, not just your primary residence. What are the best cash-out refinance companies? Here are our recommendations for the best cash-out refinance companies. SoFi Best Digital Experience 4.8 /5 View Rates Why we recommend it SoFi is our best overall pick for a cash-out refinance because of its competitive interest rates, flexible loan options, and excellent customer service. SoFi also offers perks to its members, like saving $500 at closing. It takes an average of 30-45 days to close a SoFi cash-out refinance loan. Rocket Mortgage Best Mortgage Options 4.6 /5 View Rates Why we recommend it Rocket Mortgage’s claim to fame is that it was one of the first to offer a digital mortgage, allowing borrowers to complete the approval process from the comfort of their phones. The application process is fast and user-friendly. The main drawback is that it has some higher fees compared to competitors, so it’s best to pre-qualify with several lenders to ensure you’re getting the best loan for you. Navy Federal Credit Union Best for Military Members 4.2 /5 View Rates Why we recommend it Not only is Navy Federal one of our top picks for a home equity loan, but it also offers cash-out refinance loans to eligible customers. Navy Federal allows customers to borrow up to 100% of their home’s value. As mentioned, though, only members of the military and other qualified government employees are eligible to apply. What are some alternatives to home equity loans and cash-out refinances? If borrowing against your home with a lump-sum loan or a cash-out refinance does not feel like the right fit, you have other options. Some still use your home’s equity, while others avoid putting your house on the line altogether. The right choice usually comes down to flexibility, cost, and how long you expect to carry the balance. HELOC A HELOC is often the most natural alternative to a home equity loan. Instead of receiving all the money upfront, you are approved for a credit line and borrow only what you need. This can be a better fit for ongoing or unpredictable expenses like home renovations or medical costs. Rates are usually variable, so payments can change over time, and your home is still used as collateral. A HELOC works best if you value flexibility and are comfortable managing a line of credit rather than a fixed loan. Personal loan A personal loan removes your home from the equation entirely. These loans are unsecured, come with fixed rates, and offer predictable monthly payments. The downside is cost. Interest rates are typically higher than home equity options, and loan amounts are more limited. Still, for smaller borrowing needs or debt consolidation, a personal loan can be a simpler and lower-risk alternative. 0% APR credit card For short-term needs, a 0% APR credit card can be one of the cheapest ways to borrow. You get an introductory period, often 12 to 21 months, to pay down a balance without interest. This option only works if you can pay the balance off before the promotional period ends. Once it does, interest rates jump quickly, and carrying a large balance can hurt your credit score. It is best used as a short-term strategy, not a long-term solution. Reverse mortgage For homeowners age 62 and older, a reverse mortgage is another option. Instead of making monthly payments, you receive funds based on your home’s equity, with repayment typically delayed until the home is sold or no longer your primary residence. This can work well for retirees who need extra cash flow and want to avoid new monthly payments. Fees are higher, and it reduces the equity left for heirs, so it is best considered as part of a broader retirement plan. Article sources At LendEDU, our writers and editors rely on primary sources, such as government data and websites, industry reports and whitepapers, and interviews with experts and company representatives. We also reference reputable company websites and research from established publishers. This approach allows us to produce content that is accurate, unbiased, and supported by reliable evidence. Read more about our editorial standards. Freddie Mac, Mortgage Rates Yahoo Finance, HELOC and Home Equity Loan Rates About our contributors Written by Catherine Collins Catherine Collins is a personal finance writer and author with more than 10 years of experience writing for top personal finance publications. As a mother to boy/girl twins, she is passionate about helping women and children learn about money and entrepreneurship. Cat is also the co-host of the Five Year You podcast. Edited by Amanda Hankel Amanda Hankel is a managing editor at LendEDU. She has more than seven years of experience covering various finance-related topics and has worked for more than 15 years overall in writing, editing, and publishing. Reviewed by Chloe Moore, CFP® Chloe Moore, CFP®, is the founder of Financial Staples, a virtual, fee-only financial planning firm based in Atlanta, Georgia, and serving clients nationwide. Her firm is dedicated to assisting tech employees in their 30s and 40s who are entrepreneurial-minded, philanthropic, and purpose-driven.