Use your equity.
Keep the rate you already have.
If you locked a low first mortgage, a cash-out refinance makes you give it up on your whole balance. A HELOC or home equity loan sits behind that first loan and leaves it completely untouched, so the new rate applies only to what you actually borrow. On a primary residence we go up to 90% CLTV.
How much equity can you actually access?
Start with occupancy, because it sets your ceiling. A primary residence can go to 90% CLTV. A second home or an investment property caps at 70%. Combined loan-to-value, or CLTV, is your first mortgage plus the new second divided by the value of the home.
Your Numbers
interest only$2,156/mo
principal and interest$2,447/mo
Your maximum depends on occupancy
Occupancy and credit score together set your ceiling, and this is where most online calculators mislead people. A rental does not qualify for anywhere near what your own home does, and the highest tiers have credit minimums: 90% needs a 680, 85% needs a 660, and below 640 there is no second-lien program at all.
| Occupancy | Max combined LTV | What that means in practice |
|---|---|---|
| Primary residence | Up to 90% | The most equity access available. On a $750,000 home with a $425,000 first mortgage, that is roughly $250,000 of borrowing capacity. |
| Second home | Up to 70% | Vacation and seasonal properties are capped well below a primary. Same home and balance as above would leave $100,000. |
| Investment property | Up to 70% | Rentals carry the tightest limits and price higher. Plan on leaving 30% of the value untouched. |
90% CLTV, and credit score sets the ceiling
Many lenders stop at 80 or 85 percent on a second lien. Reaching 90 on a primary residence often decides whether a project gets funded at all. Note that 90 percent requires a 680 credit score or better, 85 percent requires 660, and below that you are capped at 80 percent.
Why rentals cap lower
If a borrower gets into trouble, the rental is the first property they walk away from. Lenders price and cap for that risk, so expect roughly 70% combined and a higher rate than you would get on your own home.
Occupancy is how it is documented
A property you once lived in and now rent is investment. A place you use part of the year and never rent is usually a second home. If you are not sure which bucket yours falls in, call me before you plan around a number.
HELOC vs cash-out refinance
The right answer depends almost entirely on the rate sitting on your current first mortgage. Here is the honest comparison.
| HELOC or Home Equity Loan | Cash-Out Refinance | |
|---|---|---|
| Your existing rate | Untouched. First mortgage stays exactly as is. | Replaced. New rate applies to the entire balance. |
| Rate applies to | Only the amount you draw or borrow | The full new loan amount |
| Typical rate level | Higher than a first mortgage | Lower than a second lien |
| Closing costs | Usually lighter, sometimes minimal | Full refinance costs on the whole balance |
| Payment structure | HELOC often interest-only during the draw period, or fixed if you take the equity loan | One fixed amortized payment |
| Best when | Your first mortgage rate is below current market, or you want flexible access over time | Your current rate is at or above market, or you want everything in one payment |
| Watch out for | Variable rate on a HELOC can move, and the payment jumps when the draw period ends | Resetting a low rate on a large balance can cost far more than the cash is worth |
When a second lien is the better move
These are the situations where leaving the first mortgage alone tends to win.
You have a low first mortgage rate
This is the big one. If your first mortgage is meaningfully below today's market, refinancing the whole balance to pull cash out means repricing every dollar you owe. A second lien prices only the new money.
Home improvement projects
A HELOC lets you draw as the work progresses instead of taking the entire amount on day one and paying interest on money still sitting in your account.
Consolidating higher-rate debt
Credit card and personal loan rates typically run well above home equity rates. Consolidating can lower the blended cost, though you are moving unsecured debt onto your home, which is a real tradeoff worth discussing.
You need flexibility, not a lump sum
Tuition, a business need, or a bridge between two properties. A line you can draw against and repay repeatedly fits that better than a one-time payout.
Pulling equity for a down payment
Accessing equity in a property you already own to fund the next purchase, without disturbing financing that is already in place.
Standby liquidity
Some borrowers open a line and never draw it, simply to have access available. You generally pay interest only on what you actually use.
Common questions
Should I take a HELOC or a cash-out refinance?
How much equity can I borrow against?
Can I get a HELOC on a rental property?
What is the difference between a HELOC and a home equity loan?
Does a second mortgage change my first mortgage?
Is the interest tax deductible?
How long does it take to close?
Not sure which one fits?
Tell me your current rate, your balance, and what the money is for. I will run both options side by side and show you the real numbers, including the case where doing nothing is the right answer.
Take The Rate is a DBA of Answer Home Lending, Inc. Travis Saling, NMLS #299683. All figures on this page are estimates for planning purposes only and do not constitute a commitment to lend, a rate lock, or an offer of credit. Actual rates, available equity, and payments depend on credit score, income, occupancy, property type, appraised value, lien position, and program guidelines in effect at the time of application. Home equity products are secured by your home, and failure to repay may result in loss of the property. Consult your tax advisor regarding deductibility. Equal Housing Lender.