Cash-Out Refinance vs Home Equity Loan 2026: The $50K Decision
Cash-out refinance vs home equity loan—the choice can save or cost you $20K-$50K over loan life. Cash-out refinance replaces your entire mortgage with new loan at 6.09% (current rate)—best if your current rate is 7%+. Home equity loan adds second loan at 7.5-8.0% while keeping your existing mortgage—best if your current rate is 3-4% (don't lose it!). With $200B+ in tappable equity and rates at 3-year lows, this is the biggest financial decision you'll make. This complete 2026 guide covers exact math, break-even analysis, and real scenarios showing which option saves more. Compare with home equity vs HELOC and refinance guide. Compare both options now.
🎯 Quick Decision Guide (2026)
✅ Choose Cash-Out Refinance If:
- • Current rate 7%+ (refinance to 6.09%)
- • Need $50K+ (large amount)
- • Want single payment (simplify)
- • Bought in 2022-2024 (high rates)
✅ Choose Home Equity Loan If:
- • Current rate 3-4% (keep it!)
- • Need $20K-$100K (any amount)
- • Want separate loan (flexibility)
- • Bought in 2020-2021 (low rates)
🚨 The $50K Mistake
Biggest mistake: Refinancing a 3.5% mortgage to 6.09% just to get $50K cash. You'll pay $50K+ extra in interest over loan life by losing your low rate.
Smart move: Keep 3.5% mortgage, add home equity loan at 7.75%. Pay higher rate on $50K only (not entire $300K mortgage).
Cash-Out Refinance vs Home Equity Loan: Complete Comparison
| Feature | Cash-Out Refinance | Home Equity Loan |
|---|---|---|
| What It Does | Replaces entire mortgage | Adds second loan |
| Interest Rate | 6.09% (current refi rate) | 7.5-8.0% (higher) |
| Monthly Payments | 1 payment (combined) | 2 payments (mortgage + equity) |
| Closing Costs | $3K-$6K (2-3% of loan) | $2K-$5K (2-5% of equity) |
| Timeline | 30-45 days | 2-4 weeks (faster) |
| Best If Current Rate | 7%+ (refinance down) | 3-4% (keep low rate) |
| Max Amount | 80% CLTV ($320K on $400K home) | 85% CLTV ($340K on $400K home) |
💡 The Golden Rule
If your current mortgage rate is LOWER than 6.09%: Use home equity loan (keep low rate)
If your current mortgage rate is HIGHER than 6.09%: Use cash-out refinance (lower rate)
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Real Math: Which Saves More?
✅ Scenario 1: High Current Rate (7.25%) → Cash-Out Wins
Current Situation:
- • Current mortgage: $300K at 7.25% = $2,048/month
- • Home value: $400K (25% equity)
- • Need: $50K cash for renovations
Option A: Cash-Out Refinance
Option B: Home Equity Loan
Winner: Cash-Out Refinance because you're lowering your rate from 7.25% to 6.09% on entire $350K.
✅ Scenario 2: Low Current Rate (3.50%) → Home Equity Wins
Current Situation:
- • Current mortgage: $300K at 3.50% = $1,347/month
- • Home value: $400K (25% equity)
- • Need: $50K cash for renovations
Option A: Cash-Out Refinance
Option B: Home Equity Loan
Winner: Home Equity Loan because you keep your 3.50% rate on $300K. Only pay 7.75% on $50K.
Frequently Asked Questions
What if my current rate is 6.00%—close to today's 6.09% rate?
Choose home equity loan. Even though rates are similar, cash-out refinance has $3K-$6K closing costs + resets your 30-year clock. Example: You're 5 years into mortgage (25 years left) → cash-out refi = start over at 30 years (pay 5 extra years of interest = $50K+). Home equity loan: Keep your 25-year timeline, pay higher rate on equity portion only. Exception: If you need $100K+ and want to simplify to 1 payment, cash-out may be worth it.
Can I do a cash-out refinance if I just bought my home 6 months ago?
Yes, but you must wait 6-12 months. Conventional: 6 months minimum (most lenders), FHA: 12 months + 6 payments made, VA: 210 days (7 months) + 6 payments, USDA: 12 months. Exception: Some lenders allow cash-out at closing (limited cash-out refi) but max 2% cash back. Alternative: Use home equity loan instead—no seasoning period required (can get immediately after purchase).
How much equity do I need for cash-out refinance vs home equity loan?
Cash-out refinance: Max 80% CLTV (need 20% equity remaining). Example: $400K home → max $320K new loan ($300K old mortgage + $20K cash). Home equity loan: Max 85% CLTV (need 15% equity remaining). Example: $400K home, $300K mortgage → max $40K equity loan ($340K total ÷ $400K = 85%). Winner: Home equity loan allows slightly more borrowing (85% vs 80%).
Should I do cash-out refinance to consolidate debt?
Only if current mortgage rate is 7%+. Good scenario: You have 7.50% mortgage + $50K credit card debt at 19% → cash-out refi to 6.09% = save on both. Bad scenario: You have 3.50% mortgage + $50K credit card debt → DON'T cash-out refi (lose low rate). Better option: Keep 3.50% mortgage, use home equity loan at 7.75% to pay off credit cards (still save vs 19%, keep low mortgage rate). Learn about home equity options.
🚀 Ready to Choose the Best Option?
Get quotes for both cash-out refinance and home equity loan. See which saves more!
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