Cash-out refinance vs. a second mortgage
Your current rate decides this, not the paperwork.
- A cash-out refinance replaces your entire mortgage. It is the winner only if today's rate is at or below your current one.
- A second mortgage — a HELOC or a home-equity loan — adds a separate loan on top and leaves your first mortgage untouched.
- A second mortgage is usually the stronger pick when you already hold a low rate.
- Start by comparing today's rate to yours. That one number points the way.
- The catch: a cash-out refi can reset a low rate you can't get back.
Two ways to pull equity, one big difference
Both options turn home equity into cash. They do it in opposite ways, and the difference is what you do to your first mortgage.
A cash-out refinance pays off your existing mortgage and writes a new, larger one. You get the difference in cash. The whole balance moves to today's rate — up or down.
A second mortgage — a HELOC or a home-equity loan — sits behind your first loan. Your original mortgage and its rate stay exactly as they are. You take on a second payment for the cash you pull.
Side by side
| What you're comparing | Cash-out refi | Second mortgage |
|---|---|---|
| What changes | Replaces your first mortgage | Adds a second loan |
| Your existing rate | Reset to today's rate | Kept as is |
| Closing costs | On the whole balance | Smaller or none |
| Payment | One new payment | Two payments |
| Fits when | Today's rate ≤ yours | You hold a low first-mortgage rate |
| Main risk | Losing a low rate | A second lien and second payment |
How to choose
Pull up two numbers: the rate on your current mortgage and the rate you'd get today. That comparison does most of the work.
If today's rate is at or below yours, a cash-out refi can make sense. You move your whole balance to a rate that's the same or better, and you walk away with cash and one payment.
If your current rate is well under today's, a second mortgage is usually the stronger pick. You keep the low rate on your big balance and pay a higher rate only on the smaller amount you're pulling. Refinancing the whole loan just to reach that cash would raise the cost on every dollar you already owe.
Run both through an APR calculator so closing costs and the rate land in one number. APR, the yearly cost of borrowing as a percent, is the figure to compare — not the sticker rate alone.
If your first-mortgage rate is low, a second mortgage almost always beats refinancing the whole thing.
A cash-out refi drags your entire balance to today's rate. Trade a low rate away to reach the cash and you may pay more on the loan than you take out. Protect the rate you already have.