Cash-Out Refinance vs. Home Equity Loan: Which Is Right for You?

If you’ve built up equity in your home, you may be wondering how best to use it. Equity is one of the most powerful financial tools homeowners have, and accessing it can open doors for everything from home renovations to debt consolidation, education costs, or starting a business. Two of the most popular ways to unlock that value are a cash-out refinance and a home equity loan. While they both give you access to the money tied up in your property, they work differently, offer distinct advantages, and fit different financial goals.

At CapCenter, we specialize in helping homeowners understand these options and choose the path that works best for their needs—while saving thousands through our Zero Closing Costs advantage. That savings can mean more money stays in your pocket for the things that matter most, whether you’re upgrading your home, paying off debt, or funding a big milestone.

Understanding Your Home Equity

Before you choose how to tap into it, it’s important to understand what home equity actually is. Equity is the difference between your home’s current market value and the amount you still owe on your mortgage. For example, if your home is worth $400,000 and you have a $250,000 mortgage balance, you have $150,000 in equity. That equity grows over time as you pay down your mortgage and as your home’s value appreciates.

Your equity is an asset you can use strategically. Accessing it responsibly can strengthen your financial position or help you achieve big goals faster. The question is not just whether to use it, but how to use it.

What Is a Cash-Out Refinance?

A cash-out refinance is essentially a new mortgage. It replaces your current home loan with a new one for a larger amount than you currently owe. The new mortgage pays off your existing balance, and you receive the difference in cash. Because it’s a complete refinance, you’ll have one loan and one monthly payment going forward.

For example, let’s say your home is worth $350,000 and you owe $200,000 on your current mortgage. If you refinance for $280,000, you’ll pay off the original $200,000 and walk away with $80,000 in cash. That money can be used for almost anything—renovations, debt payoff, tuition, or investments. With CapCenter’s Zero Closing Costs, you keep more of that cash rather than spending thousands on fees.

Cash-out refinances can be especially appealing if mortgage rates have dropped since you first bought your home. Not only do you gain access to your equity, but you might also secure a lower interest rate on your existing balance. This can make large projects more affordable or reduce the cost of consolidating high-interest debt.

However, a cash-out refinance resets your mortgage term, which can extend the time it takes to pay off your home. If your new interest rate is higher than your current one, your overall cost of borrowing could increase. This is why it’s important to run the numbers and understand both the short- and long-term impact before deciding.

What Is a Home Equity Loan?

A home equity loan, often called a “second mortgage,” allows you to borrow a lump sum against your home’s equity without replacing your existing mortgage. Your current mortgage remains unchanged, and you make a separate payment on the new loan.

Suppose the same home worth $350,000 with a $200,000 balance. You could take out a $50,000 home equity loan in addition to your existing mortgage. You’d then have two monthly payments—one for your original mortgage and one for the home equity loan.

Because home equity loans often have fixed interest rates, your payment stays the same for the life of the loan, which can make budgeting easier. They’re often a good fit for one-time expenses, such as a specific renovation project, a large medical bill, or education costs. The main drawback is that interest rates for home equity loans are typically higher than those for first mortgages, and you’ll be managing two separate payments.

The Core Difference Between the Two

The biggest difference is structural:

• A cash-out refinance replaces your original mortgage entirely.
• A home equity loan leaves your current mortgage untouched and adds a second loan on top.

This difference matters most when you compare interest rates. If today’s mortgage rates are lower than your current rate, a cash-out refinance might make sense because you could reduce the interest rate on both your existing balance and the new cash portion. If your current rate is significantly lower than today’s rates, a home equity loan allows you to keep that rate while still accessing funds.

Deciding Which Is Right for You

If you want a large amount of cash, prefer having a single monthly payment, and current mortgage rates are favorable, a cash-out refinance can be a strong choice. It’s also a good option if you want to consolidate multiple debts into one manageable payment or change your loan term to better fit your budget.

On the other hand, if you already have a low-rate mortgage and only need a smaller amount of cash, a home equity loan might be better. It lets you keep your existing mortgage as-is, adds a fixed second payment, and avoids resetting your original loan term.

Real-World Examples

Jessica and Mark in Richmond wanted to transform their outdated kitchen and add a new outdoor living space. They chose a cash-out refinance to access $75,000 for the renovation. Thanks to CapCenter’s Zero Closing Costs, they didn’t have to pay thousands in fees, allowing them to put more money into the project itself. The upgrades not only enhanced their lifestyle but also significantly increased their home’s value.

David in Raleigh was struggling under $40,000 in high-interest debt. A cash-out refinance allowed him to roll that debt into his mortgage, lowering his overall interest rate and creating a single monthly payment that fit comfortably within his budget.

Meanwhile, Lena in Virginia Beach needed $20,000 to help her daughter pay for college tuition. Because she had a very low mortgage rate she wanted to keep, she opted for a home equity loan. The fixed monthly payment fit her budget, and she avoided touching her original mortgage.

Financial Comparison: How the Numbers Work

Imagine a homeowner with a $200,000 mortgage at 4% interest and a $350,000 home value who needs $60,000 in cash.

If they choose a cash-out refinance, they might take a new $260,000 loan at 5.25% for 30 years. This would create a single monthly payment of about $1,435. While the payment is lower than carrying two separate loans, the extended term could mean paying more interest over time.

If they opt for a home equity loan instead, they’d keep the $200,000 mortgage at 4% ($955 per month) and add a $60,000 loan at 6.5% for 15 years ($521 per month), for a combined total of about $1,476 per month. The monthly payment would be slightly higher, but the homeowner would keep their original mortgage intact and potentially pay less total interest in the long run.

This example highlights why it’s important to decide whether monthly affordability or total cost over time is your priority.

Risks You Should Consider

No matter which option you choose, remember that both use your home as collateral. If you can’t make the payments, you risk foreclosure. It’s essential to have a stable financial plan before borrowing against your home’s equity. Also, keep in mind that home values can fluctuate. If property values drop, you could lose equity and face challenges if you want to sell or refinance later.

More Scenarios from CapCenter Clients

Elena, a long-time homeowner in Charlotte, needed $60,000 for her child’s medical expenses. She had a very low mortgage rate and didn’t want to lose it, so she chose a home equity loan, adding a predictable second payment to her monthly budget.

Jared in Norfolk had a mortgage rate of 6.5%, but current rates had dropped to 5.25%. He needed $100,000 for a home addition. By doing a cash-out refinance, he secured the cash, lowered his rate, and reduced his monthly interest costs.

Melissa in Raleigh was paying over $80,000 in credit card and personal loan debt at high interest rates. A cash-out refinance let her roll everything into one mortgage payment, saving her $900 a month.

How Regional Markets Can Influence Your Decision

Where you live can make a big difference. In higher-cost areas like parts of California, New York, and Washington, D.C., property values tend to create larger equity cushions, making a cash-out refinance particularly appealing—especially if rates are favorable. In more affordable markets like the Midwest or certain areas of the South, home equity loans often make sense for smaller, targeted expenses without altering a low-rate first mortgage.

CapCenter operates in multiple states and our loan officers understand the unique dynamics of each market we serve. Whether you’re in Virginia Beach, Raleigh, Charlotte, or beyond, we can help you assess local trends and choose the strategy that fits.

The Role of CapCenter’s Zero Closing Costs

Closing costs can add thousands of dollars to either a refinance or a home equity loan, but with CapCenter’s Zero Closing Costs on refinances, you can access your equity without worrying about hefty upfront fees. That can tip the balance toward a cash-out refinance when compared to traditional lenders. For many homeowners, the savings from avoiding closing costs can be redirected toward their project, debt payoff, or other goals.

The Final Word

Your home is one of your biggest financial assets, and its equity is a resource that can work for you—if you use it wisely. A cash-out refinance and a home equity loan are both powerful tools, but the right choice depends on your current mortgage rate, the amount you need, your financial goals, and your comfort with monthly payments.

At CapCenter, we make the process simple, transparent, and cost-effective. With our Zero Closing Costs, you can unlock your equity without sacrificing thousands to fees. Whether you’re looking to renovate, consolidate debt, or fund an important life milestone, our team will guide you every step of the way—helping you keep more of your hard-earned equity where it belongs: in your pocket.

You can get started today with our online application or talk to a loan officer to explore which option fits your needs best.