Home Equity Loan vs Cash-Out Refi for Remodel
A **home equity loan** is a second mortgage with fixed rate and lump sum—good for defined remodel budgets. **Cash-out refinance** replaces the first mortgage with a bigger balance—wins when primary rates are lower than your current rate.
Step by step
1. Compare blended rate
Cash-out resets entire mortgage rate—do not only look at equity portion.
2. Closing costs
Refi closing can be 2-5%—amortize over hold period.
3. Timeline
HE loan may close faster for contractor deposit.
HE loan vs cash-out refi
Rising primary rates made HE loans more popular again.
- Home equity loan: Fixed second lien; keeps first mortgage intact.
- Cash-out refi: One payment; resets rate on full balance.
Common mistakes
- Cash-out extending term 30 more years
- Underestimating remodel overruns
FAQ
Is interest deductible?
Must use funds to improve home securing the loan—CPA rules.