Thinking about renovating your kitchen, paying down high-interest debt, or covering a big expense like college tuition? If you’ve built equity in your home, you may already be sitting on a valuable financial resource.

Two common ways to access that equity are a home equity loan and a cash-out refinance. Both can get you the cash you need—but they work differently, and the better option depends on your personal goals.

Let’s walk through the basics so you can make a more informed decision.

 

Understanding the Basics

Before comparing options, it helps to know how these loans are structured:

• Lien: This simply means your lender has a legal claim to your home until the loan is repaid.

• First Mortgage (First Lien): Your primary home loan. If you sell your home, this gets paid off first. A cash-out refinance falls into this category because it replaces your existing mortgage.

• Second Mortgage (Second Lien): Any additional loan taken against your home that sits behind your primary mortgage. Home equity loans and HELOCs fall into this category.

 

What Is a Cash-Out Refinance?

A cash-out refinance replaces your current mortgage with a new, larger loan. The new loan pays off your existing balance, and you receive the difference as cash.

This option may be a good fit if you:

• Can secure a lower interest rate than your current mortgage

• Want to roll high-interest debt into one lower monthly payment

• Need a larger lump sum of cash

• Prefer the simplicity of a single loan and payment

• Plan to stay in your home long enough to justify closing costs

Bottom line: A cash-out refinance can be powerful if you’re improving your rate, simplifying your payments, and accessing a larger amount of cash.

 

What Is a Home Equity Loan?

A home equity loan allows you to borrow against your equity without changing your current mortgage. It comes as a lump sum with a fixed interest rate and predictable monthly payments.

This option may make more sense if you:

• Already have a low mortgage rate you want to keep

• Only need a moderate amount of cash

• Don’t mind having two separate monthly payments

• Want lower upfront costs compared to a refinance

Bottom line: A home equity loan is a strong choice if you want stability and don’t want to disturb your existing mortgage.

 

What About a HELOC?

A Home Equity Line of Credit (HELOC) is another way to tap into your equity, but instead of a lump sum, it works more like a credit card. You can draw funds as needed, which can be helpful for ongoing or unpredictable expenses.

Keep in mind:

• Rates are typically variable

• Payments can change over time

• You only borrow what you need, when you need it

If flexibility is a priority, a HELOC could be worth exploring. Click here to learn about our Digital HELOC.

 

Important Considerations

Using your home as collateral comes with responsibility. If payments aren’t made, your home could be at risk, so it’s important to borrow thoughtfully.

Lenders will also evaluate your Loan-to-Value ratio (LTV)—the percentage of your home’s value that you’ve borrowed.

Here’s why that matters:

• Lower LTVs typically qualify for better rates

• Most lenders limit borrowing to about 80–85% of your home’s value

• Your LTV impacts how much cash you can actually access

 

Questions to Ask Yourself

Before deciding, take a step back and consider:

• How does your current mortgage rate compare to today’s rates?

• How much money do you truly need?

• How long do you plan to stay in your home?

• Are you comfortable leveraging your home as collateral?

 

Final Thoughts

Both options: home equity loans and cash-out refinances can be smart ways to access funds when used strategically. The key is choosing the one that aligns with your financial situation, timeline, and long-term goals.

When in doubt, running the numbers with a Greenway Mortgage Loan Officer can help you feel confident in your decision. Contact us when you're ready to take the next step! 888-616-9885.