THE RATE SHOP · KANSAS CITY · KANSAS & MISSOURI
Home Equity Loan vs. Cash-Out Refinance
Keep your existing mortgage and add a second loan, or replace your first mortgage with a larger one. Compare the entire borrowing plan, not just the rate on the new cash.
OPTION A
Keep the first mortgage.
A separate home equity loan normally leaves your first mortgage's rate and repayment schedule in place. You pay both loans until each is repaid.
OPTION B
Replace the first mortgage.
A cash-out refinance pays off your current mortgage and creates one larger loan. The new rate and term apply to the whole new balance.
What changes in your monthly payment and total cost?
Use your remaining mortgage term, not its original term. Compare both options over the same number of years. All starting rates and fees below are editable illustrations, not current offers.
Principal-and-interest estimates only. Taxes, insurance, HOA dues, mortgage insurance, tax benefits, prepaid items and escrow funding are excluded. Both options provide the same entered cash amount; loan fees are paid separately in cash and counted once. Refinance principal = current first mortgage balance + cash requested. Available equity and eligibility are not determined. Rates remain constant, payments are monthly and no extra payments are assumed.
When could refinancing be worth considering?
Refinancing may fit when the new terms improve the full mortgage plan, when restructuring the payoff date serves your goals, or when an existing adjustable loan needs review. A favorable current first rate can make a separate equity loan attractive, but that does not decide the result by itself.
Compare interest plus fees over your expected holding period, the balance still owed, and the payments you can comfortably afford. A longer term may reduce today's payment while increasing total interest and leaving more debt later.
Good questions. Clear answers.
Why not compare the two interest rates alone?
A refinance applies its new rate to the entire mortgage balance. A separate equity loan applies its rate to the additional borrowing while your existing first loan continues. The balances, terms and fees all matter.
Does a lower monthly payment mean I save money?
No. Extending repayment can lower the payment while increasing interest or slowing principal reduction. Use the same comparison period and review the remaining balance.
What if I finance the closing costs?
This tool assumes fees are paid in cash. Financing fees increases the loan balance and interest, so ask Mike for a comparison that includes the actual financed amounts.
What happens if I sell in a few years?
Outstanding loans generally must be paid off at sale. Compare both plans over your likely holding period, including their unpaid balances and any early payoff or closure costs.
MIKE BAKER · NMLS #259076
Let's make the numbers fit your life.
Bring your goal, current mortgage statement and questions. We'll compare the payment, upfront costs and repayment plan before you choose your next step.
Prepared by Mike Baker, The Rate Shop. Reviewed September 30, 2026. Educational sources: CFPB home equity loan guide, CFPB loan and line comparison, and CFPB HELOC booklet.