Cash-Out Refinance vs. Personal Loan
When you need cash, you have options. After helping thousands of homeowners refinance over the past 17 years across the United States, I have walked borrowers through this exact comparison many times. Two common options are a cash-out refinance and a personal loan. They work very differently, and the right choice depends on your situation.
Cash-Out Refinance
A cash-out refinance replaces your mortgage with a larger one. You get the difference in cash.
Lower interest rates. Mortgage rates are typically much lower than personal loan rates because your home serves as collateral.
Larger amounts available. You can access a significant amount of equity depending on your home value and loan balance.
Longer repayment. The cash-out amount is spread over your mortgage term (15 or 30 years), which keeps the monthly cost low.
Closing costs. You pay closing costs on the entire new loan, which can be significant.
Your home is collateral. If you cannot make payments, your home is at risk.
Personal Loan
A personal loan is unsecured debt. You borrow a fixed amount and pay it back over a set term, usually 2 to 7 years.
Higher interest rates. Because there is no collateral, rates are higher than mortgage rates.
Smaller amounts. Personal loans are usually smaller than what you could get through a cash-out refinance.
Shorter repayment. You pay it off faster, which means less total interest even at a higher rate.
No closing costs. Most personal loans have minimal or no upfront fees.
No risk to your home. Your house is not on the line.
When to Choose a Cash-Out Refinance
- You need a large amount of cash
- You can also lower your mortgage rate at the same time
- You want to spread the borrowed amount over a longer term for a smaller monthly payment
- You are using the cash for home improvements (which may also be tax-deductible)
When to Choose a Personal Loan
- You need a smaller amount
- You want to pay it off quickly
- You do not want to touch your mortgage or restart your loan term
- Your mortgage rate is already very low and refinancing would raise it
Compare the Total Cost
For any amount you need, compare the total interest paid over the life of each option. A cash-out refinance may have a lower rate, but spreading it over 30 years can mean more total interest than a 5-year personal loan at a higher rate.
Check your cash-out refinance options at Lendtrain to see the numbers. Run the refinance break-even point math and compare against a personal loan offer before deciding.
Rate quotes are estimates based on the credit score you enter. Actual rates may differ based on verified credit, income, and property details. Lendtrain (NMLS# 1844873) is a licensed mortgage broker. Equal Housing Opportunity.