Home Equity Loan Rates vs Refinance Rates

If you’re tapping into your home’s equity either through a home equity loan or a cash-out refinance one of the first things you’ll look at is the interest rate.

Lower rates usually mean lower monthly payments and less long-term cost, but not all rates are created equal.

Home equity loan rates and refinance rates serve different purposes, come from different lending risk models, and can impact your finances in very different ways.

This guide explains the real differences between home equity loan rates vs refinance rates, why they’re different, and how to decide which path makes the most sense for your situation.

A home equity loan is a second mortgage that lets you borrow against the equity you’ve built in your home without replacing your primary mortgage.

With a home equity loan, you get a fixed interest rate and a fixed monthly payment. Lenders charge slightly higher rates because this loan is junior, in other words, it gets paid only after your first mortgage if you default.

That’s why home equity loan rates tend to sit above primary mortgage refinance rates.

Because home equity loan payments are separate from your main mortgage, many homeowners compare home equity loan rates when they decide whether borrowing against equity makes sense without disturbing their existing loan.

Refinance rates refer to the interest rate you receive when you replace your existing mortgage with a new one, either for better terms (rate-and-term refinance) or with borrowed equity included (cash-out refinance).

Since this replaces your original mortgage entirely, lenders price refinance rates based on your overall risk profile and current market trends.

Refinance rates vary significantly by loan type and borrower financials, which is why many homeowners compare multiple mortgage refinance rates before choosing a lender.

The most important thing to understand is this:

In default scenarios, the first mortgage gets paid first. A second mortgage like a home equity loan  has higher risk for the lender, so they charge higher rates to compensate.

A refinance loan undergoes full underwriting that takes your entire financial picture into account, which can lead to better pricing if your credit and income are strong.

In contrast, a home equity loan is priced more conservatively because it’s a second lien.

When you factor in equity access with your interest rate, the trade-offs become clearer.

Cash-out refinance rates are usually slightly higher than rate-and-term refinance rates, because you are increasing your loan balance and extracting equity. Still, they often remain lower than home equity loan rates for similar loan–to–value (LTV) levels.

Even when refinance rates are lower, a refinance increases your loan balance and resets your mortgage schedule, which can increase total interest paid over time.

That’s why homeowners compare home equity loans and cash-out refinances based on total cost, not just rates especially when discussing cash-out refinance risks and benefits.

Several common factors influence both types of rates:

• Credit score – higher scores = better rates
• Loan-to-value (LTV) – more equity usually means lower rates
• Debt-to-income ratio – lenders look for capacity
• Market conditions – overarching rate environment
• Property type and condition

Because of these shared factors, many homeowners make decisions based on personal financial profile as much as loan type.

Some situations favor a home equity loan, even if the rate is higher.

If your primary mortgage has an exceptionally low rate, refinancing it into a new loan with a higher rate, just to access cash can cost you more over time. In that case, a second loan with a slightly higher rate may cost less overall.

Second loans work well for smaller equity needs because you’re only borrowing what you need, instead of refinancing the entire balance.

Refinancing can be the smarter choice when:

Replacing your mortgage and adding cash out creates a single payment, simpler to manage and often cheaper in total interest than having two loans.

Refinance allows you to restructure loan terms, which can improve your interest expense and stability.

When you compare refinance options, it’s worth running scenarios on total interest over the life of each loan.

To make a smart decision:

1. Get personalized rate quotes for both a home equity loan and a refinance.
2. Include closing costs – lower rates can still cost more if fees are high (review refinance closing costs).
3. Use a refinance calculator or amortization estimator to test total cost outcomes.
4. Consider your timeline – how long you plan to stay matters.

Comparing rates without context often leads to false conclusions. What looks cheaper today might cost you more in the long run.

Home equity loan rates are generally higher than refinance rates because of lender risk and loan structure. But lower rates don’t always mean lower cost, especially if refinancing resets a great existing rate or extends your loan for longer.

A refinance can make sense when it consolidates debt, lowers total cost, or improves terms. A home equity loan can make sense when you want to preserve a low mortgage rate and only need modest cash.

The smartest choice comes from comparing total cost, payment impact, and long-term plans, not just the interest number on paper.