Tap Your Equity: 2nd Lien vs. Cash-Out Refi
If you have a low first mortgage rate from the last few years, cash-out refinancing replaces it at today's rates — on the whole balance. Opening a new 2nd lien keeps your low first rate and only puts today's rate on the new borrowing. Here's the math on both.
Your Situation
If you plan to refinance or sell within your chosen window, that's the period this comparison uses for total-cost math.
Today's Rates
Enter the rates you'd expect on each option. HELOAN (fixed 2nd lien) rates typically run ~8–10%. Cash-out refi rates typically run ~6.5–7.5%. Check NetRate's current pricing →
The "Don't Lose Your Rate" Math
Most homeowners who bought or refinanced between 2019 and 2022 have a first mortgage rate well below today's market. If you need cash from your equity, cash-out refinancing forces you to replace that rate on the entire balance at today's higher rate — not just on the new money.
A second lien (HELOAN or HELOC) only puts today's rate on the new borrowing. Your first mortgage stays exactly as it is. The tradeoff: two payments instead of one, and 2nd-lien rates are higher than first-lien rates because the lender sits in second position.
When a 2nd lien usually wins
- You have a first mortgage below ~5% and don't want to lose it
- You only need a modest cash amount relative to your first balance
- Your CLTV stays within 2nd-lien program limits (typically 80–85%)
When cash-out refi usually wins
- Your current first rate is close to or above today's rates (no low rate to preserve)
- You want one payment instead of two
- You need a large cash amount and your LTV after cash-out stays under 80%
HELOAN vs HELOC
A HELOAN is a fixed-rate, fully amortizing 2nd mortgage — one lump sum with a fixed monthly payment, like a traditional mortgage in 2nd position. Principal pays down every month. The calculator models it like any other amortizing loan.
A HELOC is a revolving line of credit tied to Prime rate. During the draw period (typically 5 years for newer programs, 10 years for traditional bank HELOCs), you pay interest only — no principal paydown. After the draw ends, the full balance converts to a fully amortizing payment over the remaining term, and payments can jump significantly. Because HELOC rates are variable, the payment can also move as Prime moves. For most borrowers, a HELOC makes sense only as a short-term tool — plan to refinance or pay off the balance before the draw period ends.
This calculator is for illustration only. It does not use NetRate Mortgage's live pricing engine — it performs pure payment math on rates you enter. HELOC mode models interest-only payments during the draw period only; the post-draw amortizing payment can be materially higher and depends on the then-current variable rate. Actual rates and payments depend on credit, LTV/CLTV, property type, occupancy, state, and other factors. Contact us for a real quote.