Cash-Out Refinance vs. Home Equity Loan in Wisconsin – Which Saves You More?
Tapping Into Home Equity the Smart Way
If you're a homeowner exploring ways to access your home's equity, you've probably come across two main options: a cash-out refinance or a home equity loan. Both can give you access to the cash tied up in your house - but which one actually saves you more in the long run?
In this guide, I'll break down how each works, when each makes sense, and what Wisconsin homeowners need to watch for before deciding.
What Is a Cash-Out Refinance?
A cash-out refinance replaces your existing mortgage with a new one - typically at a new interest rate and loan term - while allowing you to take cash out based on the equity you've built in your home.
Example:
Let's say your home is worth $400,000, and your current mortgage balance is $250,000. If you refinance for $320,000, you could take $70,000 in cash (minus closing costs).
Pros of a Cash-Out Refinance:
- Often offers lower interest rates than personal loans or credit cards
- May extend your term and reduce monthly payments
- Allows you to consolidate high-interest debt into one payment
- Potentially tax-deductible interest if used for home improvements
Cons:
- You'll pay closing costs, similar to a regular refinance
- Resets your loan term
- Takes longer to close than a simple home equity loan
(Internal Link: Cash-Out Refinance in Wisconsin - 2025 Guide: Turn Equity into Opportunity)
What Is a Home Equity Loan?
A home equity loan (sometimes called a "second mortgage") lets you borrow a fixed amount of money while keeping your current mortgage in place. It's structured as a separate loan with its own fixed interest rate and repayment term - typically 5, 10, or 15 years.
Pros of a Home Equity Loan:
- Keeps your current mortgage intact (especially if you have a great rate)
- Predictable fixed payments
- Faster and easier approval process
- Ideal for short-term projects or one-time expenses
Cons:
- Usually carries a higher interest rate than a primary mortgage
- Adds a second monthly payment
- Interest isn't always tax-deductible
(External Link: Understanding Home Equity Loans - Investopedia)
Cash-Out Refinance vs. Home Equity Loan: Key Differences
| Feature | Cash-Out Refinance | Home Equity Loan |
|---|---|---|
| Structure | Replaces existing mortgage | Second loan on top of current mortgage |
| Interest Rate | Typically lower | Typically higher |
| Closing Costs | Yes (2 - 5% of loan amount) | Minimal (often 1 - 2%) |
| Monthly Payment | One payment | Two separate payments |
| Best For | Large expenses, debt consolidation | Small projects or short-term needs |
In most cases, a cash-out refinance makes more sense for homeowners planning to stay in their home for several years or wanting to reduce their overall debt burden.
A home equity loan, on the other hand, might be smarter if you've already got a super low mortgage rate and just need a small lump sum for something specific.
Which Option Saves You More in Wisconsin?
That depends on your goals. If your current mortgage rate is high and you can refinance into something lower, a cash-out refinance almost always wins. You'll likely:
- Pay less in total interest
- Simplify your finances into one payment
- Potentially improve your credit by consolidating debt
If your rate is already low, though, and you just need a smaller amount of money quickly (say, under $50K), then a home equity loan can be a convenient short-term tool.
(External Link: Fannie Mae - Using Home Equity Wisely)
When a Cash-Out Refinance Might Not Be Worth It
There are times when refinancing doesn't make sense - for example, if:
- Your current mortgage rate is much lower than today's market
- You plan to move within the next 2 - 3 years
- You don't have enough equity (typically need at least 20%)
In that case, a home equity loan or even a HELOC might be the better move.
(Internal Link: Refinance Your Mortgage in Wisconsin 2025 - Homeowners Guide)
Work With a Local Expert Who Runs the Real Numbers
The truth is, both options can work - but only one will fit your long-term goals. My team and I will review your current loan, rate, and financial goals to help you determine which path builds wealth faster and costs less over time.
Before you sign anything, we'll show you exact side-by-side comparisons of cash-out vs. equity loan scenarios so you can see which truly benefits your situation.
Contact the Wisconsin Mortgage Expert
Adam Zeman - NMLS #870441
Union Home Mortgage
📍 Serving all of Wisconsin
📞 414-975-2654
📧 azeman@uhm.com
🌐 www.mkemortgage.com
💬 Chat with my 24/7 Mortgage Assistant