Cash-Out Refinance vs Home Equity Loan – Which Saves You More Money

Today we are going to discuss a cash-out refinance vs home equity loan – which saves you more money? Before you decide, run your numbers. This is not opinion. Instead, it is just math. You compare two paths, and then the better one shows up.Also, many couples see debt differently. One person often trusts numbers and tools. Meanwhile, the other person just wants safety and comfort. However, both people want to protect their family and home. So, instead of debating, let’s compare the numbers together.

First, What Are We Comparing?

We are comparing two ways to move high-cost debt into your home loan.

Option 1 — Cash-Out Refinance

You replace your entire mortgage with a new one. Then you pull cash out to pay off other debt.

Option 2 — Home Equity Loan

You keep your current mortgage. Then you add a second fixed loan to pay off debt. So, now let’s look at real numbers.

Example #1 — When a Home Equity Loan Wins

Here is the first example from the calculator.

Mortgage details

• Original loan: $300,000

• Rate: 4%

• Loan started 5 years ago

• Current balance: $271,000

• Monthly mortgage payment (principal & interest): $1,432

Meanwhile, the household also has:

• Extra debt: $40,000

• Monthly debt payments: $1,250

So, the goal is simple:

✅ Lower monthly payments
✅ Pay the least amount over time

Cash-Out Refinance Numbers

If the new mortgage rate is 6%, then:

• Monthly savings = $770 per month

That money could help with:

• Kids’ activities

• Vacations

• Or simply making ends meet

However, we still need to compare the long-term cost.

Home Equity Loan Numbers

Suppose a local credit union offers:

• Home equity loan rate: 7.12%

• Loan length: 10 years

Then:

• Monthly savings = $763 per month

So, the monthly savings look almost the same.

But here is the big difference.

👉 Keeping the first mortgage and using a home equity loan saves about $200,000 over the life of the debt.

That number stands out.

Stretching the Loan to Lower Payments

Also, home equity loans can stretch longer.

For example, if the loan runs 15 years instead of 10:

• Monthly savings increase to $869

Meanwhile, lifetime savings drop a little, but still stay strong.

So, you can adjust payments based on your family’s needs.

Example #2 — When a Cash-Out Refinance Wins

Now let’s flip the situation.

Suppose the original mortgage looked different.

Mortgage details

• Original loan: $300,000

• Rate: 6.75%

• After 5 years balance: $281,600

• Mortgage payment: $1,945

Now rates changed.

• New refinance rate: 6%

• Home equity loan option: 12%

So, what happens?

Cash-Out Refinance Results

Now the refinance saves:

• $1,218 per month

That is a huge monthly improvement.

Home Equity Loan Results

Meanwhile, stretching the home equity loan to 15 years only saves:

• $757 per month

Yes, lifetime savings may reach about $39,000, but many families need monthly relief more than long-term savings.

So, in this case, the refinance works better.

Why Running Your Numbers Matters

Notice something important.

In Example #1, the home equity loan saved $200,000 long-term.

In Example #2, the refinance saved far more per month.

So, the right answer changes based on your situation.

Therefore, guessing can cost you money.

Think About the Big Choices

Also, refinancing costs money. Closing costs often run 2% to 2.5% of the loan amount. Because of that, it can take 3 to 7 years just to break even.

Meanwhile, keeping a good low-rate mortgage often saves money long term.

So, again, numbers tell the truth.

What Should Families Do Next?

Instead of arguing or guessing:

1. Look at your current mortgage balance.

2. Check your interest rate.

3. Add your current debt payments.

4. Compare both options.

5. Then choose what works best for your home.

Simple steps. Clear path.

The Big Goal

This is not about perfection.

Instead, it is about making smart big moves.

Because one good decision can mean:

• More money now

• Less stress monthly

• Or even better retirement savings later

So, run your numbers. Compare both paths. Then move forward with confidence.

Final Thought

Cash-out refinance is not always right. Home equity loans are not always right. However, the better option becomes clear once you compare the numbers. So, before jumping into a refinance or loan, test your situation first. Because smart debt choices help you enjoy life now and protect your future.

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