If you’re a homeowner looking to extract equity, you have a few options. You could do a cash-out refinance, signing a new mortgage with a balance exceeding what you currently owe on your home. Or, you could take out a second mortgage, such as a home equity loan or home equity line of credit.
When mortgage rates are competitive, the cash-out refinance route often makes sense. Primary mortgages tend to have lower rates than second mortgages, and they leave you with a single monthly payment to make.
But when mortgage rates are high, cash-out refinances don’t tend to be as popular. And not surprisingly, with today’s elevated mortgage rates, more homeowners are turning to products like home equity loans and HELOCs to take advantage of the equity they’ve built.
Demand for home equity loans and HELOCs reached an 18-year high during the first quarter of 2026, according to Intercontinental Exchange’s June 2026 ICE Mortgage Monitor. The report found that 3.9 million homeowners who took out primary mortgages from 2020 through 2022 now have a second lien.
The problem is that while mortgage rates today are elevated, so are home equity loan and HELOC rates. The Federal Reserve left its benchmark interest rate unchanged at its June meeting, but nine out of 18 policymakers signaled that rate hikes could happen by the end of the year. If rates rise, it could make home equity loans even more expensive and subject borrowers with variable-rate HELOCs to rising payments.
Are home equity loans and HELOCs the best option for tapping home equity, or is refinancing the better choice right now? Here’s what homeowners should know.
[READ: Best HELOC Lenders]
It’s a Matter of How Much You’re Looking to Borrow
A cash-out refinance may be available to you at a lower interest rate than a home equity loan or HELOC. But it may also require you to borrow a very large sum of money, since that loan covers your existing mortgage balance plus whatever additional funds you need to borrow.
Jeremy Schachter, branch manager at Fairway Independent Mortgage in Phoenix, says the amount you want to borrow should play a big role in your decision. If it’s a relatively small amount, a home equity loan or HELOC could be the best option.
“If you have an ultralow rate on your current mortgage and are looking to take out a minimal amount, it might not make sense to redo your current mortgage and lose that lower rate to take out $30,000 to do a kitchen remodel,” he explains.
[SEE: Best Home Equity Loans]
Your Current Mortgage Rate Matters
Another key consideration is your current mortgage rate, says TJ Tassone, mortgage broker and owner at Tayton Capital LLC in Denver.
“For many homeowners today, a home equity loan or HELOC makes more sense than a cash-out refinance because it allows them to preserve an existing first mortgage rate,” Tassone explains. “Many homeowners still have rates in the 2% to 4% range, and replacing that entire loan with a new mortgage at current market rates often increases the payment significantly.”
On the flip side, Tassone says, a cash-out refinance could be the better solution when the borrower’s existing mortgage rate is similar to current market rates. And if your credit has improved since you signed your mortgage, you may be eligible for a lower interest rate on a cash-out refinance than what you’re currently paying on your home loan.
[Read: Best Mortgage Refinance Lenders.]
A Home Equity Loan May Be Safer Than a HELOC
If you’re sitting on a low mortgage rate and don’t want to lose it, a second mortgage could be a more optimal solution. But Schachter warns that if you value predictability in your monthly finances, a HELOC may not be ideal.
If the Fed raises interest rates, Schachter says, it could make HELOC borrowing more expensive, since HELOCs typically have variable rates. Home equity loans are fixed amounts with fixed interest rates, so payments are predictable throughout the life of the loan.
Mark Clark, founder and financial advisor at Prestige Advisors in Sarasota, Florida, says, “Variability does not make (a HELOC) inappropriate on its own.”
HELOCs are typically priced below unsecured debt and offer flexibility for phased or short-duration needs, Clark says.
“A borrower with stable income and a clear payoff plan can use a HELOC effectively, while a borrower treating it as open-ended debt takes on far more risk. The most common pitfall is payment shock when the draw period ends and principal repayment begins,” Clark explains.
It May Be a Good Time to Get the Ball Rolling
With interest rate hikes potentially on the horizon, borrowers may be wondering if now’s a good time to lock in a home equity loan or HELOC.
“Rushing blindly is unwise, but ignoring the rate environment is equally unwise,” Clark says. Borrowers who anticipate needing access to equity in the near term can benefit from establishing a line of credit now.
“Opening a HELOC creates access without requiring an immediate draw and preserves that access if lending standards tighten or rates rise,” he says.
Don’t Just Look at Rates
In the course of exploring your options for tapping home equity, it’s natural to focus on borrowing rates across the products you’re considering. But it’s important to look past the rate to the total cost.
“HELOCs and home equity loans generally carry closing costs of 1% to 5% of the loan amount and may include annual, inactivity, early-closure and conversion fees, while cash-out refinances typically run 2% to 5% of the new loan amount,” Clark says.
Equally important is matching the product to the purpose. “HELOCs suit flexible or phased needs. Fixed-rate loans suit known lump sums,” he says.
Tassone believes it’s important to consider affordability.
“The decision should focus on total monthly payment, not simply the interest rate on the new loan.”
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Homeowners Are Raiding Home Equity Instead of Refinancing originally appeared on usnews.com
