Which is better: refinance or home equity loan?

Before we get into the finer points of each option, here’s an example that compares using a cash-out refinance vs. a home equity loan.

See the side-by-side comparison

Home improvement scenario: Cash-out refinance vs. home equity loan

Your current mortgage

After 15 years, you owe $200,000 on your 30-year mortgage with a 4.00% annual percentage rate (APR). You pay $1,552 a month on principal and interest (excluding taxes and insurance).

You want to remodel your kitchen and finish your basement. After getting a few estimates, you know that these updates will cost about $75,000.

You decide you want to use some of your home equity to pay for your projects. You call your trusted U.S. Bank loan officer, and they explain two options.

Option 1: Cash-out refinance

A cash-out refinance lets you access the equity in your home to get cash at closing. You can get new mortgage terms and borrow funds for a one-time expense at the same time.

This option combines your current mortgage of $200,000 and the $75,000 you need for your project, which you’d get as cash out.

This would give you a new mortgage of $275,000 with a 6.375% APR over the course of the next 20 years. You’ll also pay an estimated $8,799 in closing costs, which is factored into your monthly payment amount.

Your new monthly mortgage principal and interest payment would be $2,165 (excluding taxes and insurance).

Option 2: Home equity loan

A home equity loan lets you use the equity in your home to take out a lump sum and keep your current mortgage. Along with your regular mortgage payments, you’ll pay back the new loan at a fixed rate over a fixed amount of time.

This option lets you keep your current $200,000 mortgage at 4.0% APR, which costs you $1,552 a month. You also take out a new home equity loan of $75,000 at 8.25% APR for a term of 20 years, which will cost you $639 a month. There are no closing costs.

Your current monthly mortgage payment and your new home equity loan payment together would be $2191 (excluding taxes and insurance).
 

These rates, APRs, monthly payments and points are current as of 03/27/2025 and may change at any time. They assume you have a FICO® Score of 740+ and at least 25% equity for a conventional fixed-rate loan. Interest rate and program terms are subject to change without notice.

Get to know your home equity options

To help decide on the right funding for your situation, it’s important to know how home equity loans, home equity lines of credit (HELOCs) and cash-out refinances work. Here’s a simple breakdown:

Home equity loan

  • What it is: A loan you take out using the equity in your home that often has lower closing costs than a refinance. Some home equity loans have no closing costs.
  • How it works: You get a lump sum of money and pay it back in fixed monthly amounts.
  • Best for: People who need a large, one-time amount, like for a big project.
  • Potential drawbacks: Home equity loans may have higher interest rates than refinancing.
Learn more about home equity loans

HELOC (home equity line of credit)

  • What it is: A line of credit you can draw from when you need money, similar to a credit card.
  • How it works: You can borrow as much as you need during your draw period, which is the timeframe between when the HELOC opens and your repayment begins. You only pay interest on what you borrow.
  • Best for: Ongoing expenses, like home repairs over time.
  • Potential drawbacks: Since HELOCs have variable rates, your repayment amounts may increase if rates go up.
Learn more about HELOCs

Cash-out refinance

  • What it is: A new mortgage that replaces your current one. You borrow more than what you owe and take the extra money as cash.
  • How it works: The refinance combines your remaining mortgage balance with your requested cash-out amount into one new loan.
  • Best for: Homeowners looking to lower their mortgage rate and get cash.
  • Potential drawbacks: Refinances can have higher closing costs than home equity loans.
Learn more about cash-out refinances

Quick comparison table

Option

Best for

Interest type

How you get the money

Home equity loan

Large one-time expenses

Fixed rate

Lump sum

Cash-out refinance

Lowering mortgage rate & getting extra cash

Fixed rate

Lump sum combined with new mortgage

HELOC

Borrowing as needed

Variable rate

Withdraw as needed

How to choose the right option

Here are some tips to help you decide what works best for your situation:

  • If you need a large, one-time sum, try a home equity loan or cash-out refinance.
  • For smaller or ongoing expenses, a HELOC may be better.
     

  • If your mortgage rate is higher than currently available refinance rates, a cash-out refinance may help you lower your rate.
  • If your mortgage rate is below currently available refinance rates, a home equity loan may be a better choice.

  • A home equity loan has fixed rates and predictable payments.
  • A cash-out refinance can come with fixed or variable rates, depending on what kind of home loan you choose.
  • A HELOC has variable rates that may change over time and impact your payment amount.

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Disclosures

Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rate and program terms are subject to change without notice. Mortgage, Home Equity and Credit products are offered through U.S. Bank National Association. Deposit products are offered through U.S. Bank National Association. Member FDIC.

Home Equity Line of Credit: Repayment options may vary based on credit qualifications. Choosing an interest-only repayment may cause your monthly payment to increase, possibly substantially, once your credit line transitions into the repayment period. Interest-only repayment may be unavailable. Loans are subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. A U.S. Bank personal checking account is required to receive the lowest rate but is not required for loan approval. Customers in certain states are eligible to receive the preferred rate without having a U.S. Bank personal checking account. Interest rate and program terms are subject to change without notice. Credit line may be reduced, or additional extensions of credit limited if certain circumstances occur.

An early closure fee of 1% of the original line amount, maximum $500, will apply if the line is paid off and closed within the first 30 months. Property insurance is required. Other restrictions may apply. Customer pays no closing costs. Initial escrow related funding costs may apply. An annual fee of up to $75 may apply after the first year and is waived or discounted with an existing U.S. Bank Platinum Checking Package or with enrollment in our Smart Rewards Program. Annual fees are assessed based on the tier in our Smart Rewards Program on your HELOC anniversary date. Please refer to your Smart Rewards terms and conditions for more information on tier assignment.

Home Equity Loan: As of March 15, 2024, the fixed Annual Percentage Rate (APR) of 7.65% is available for 10-year second position home equity installment loans $50,000 to $99,999 with loan-to-value (LTV) of 60% or less. Rates may vary based on LTV, credit scores or other loan amount. In order to receive the lowest rate advertised, a set-up of automatic payments from a U.S. Bank personal checking or savings account is required but neither are required for loan approval. Clients in certain states are eligible to receive the preferred rate without having automatic payments from a U.S. Bank personal checking or savings account. Loan payment example: on a $50,000 loan for 120 months at 7.65% interest rate, monthly payments would be $597.43. Payment example does not include amounts for taxes and insurance premiums. The monthly payment obligation will be greater if taxes and insurance are included and an initial client deposit may be required if an escrow account for these items is established. Home equity loans not available for properties held in a trust in the states of Hawaii, Louisiana, New York, Oklahoma and Rhode Island. Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rates and program terms are subject to change without notice. Property insurance is required. Other restrictions may apply.

The rates shown above are the current rates for the refinance of a single-family primary residence based on a 45-day lock period. These rates are not guaranteed and are subject to change. This is not a credit decision or a commitment to lend. Your final rate will depend on various factors including loan product, loan size, credit profile, property value, geographic location, occupancy and other factors.

To lock a rate, you must submit an application to U.S. Bank and receive confirmation from a mortgage loan officer that your rate is locked. An application can be made by calling 888-291-2334, by starting it online or by meeting with a mortgage loan officer.

Minnesota properties: To guarantee a rate, you must receive written confirmation as required by Minnesota Statute 47.206. This statement of current loan terms and conditions is not an offer to enter into an interest rate or discount point agreement. Any such offer may be made only pursuant to subdivisions 3 and 4 of Minnesota Statutes Section 47.206.