As the second half of 2026 gets underway, many homeowners are reviewing their finances and planning for the year ahead. If your home’s value has increased or you’ve significantly paid down your mortgage, now is a good time to explore whether a home equity refinance or another financing option makes sense for you.
According to the Federal Reserve Bank of St. Louis, homeowners have accumulated substantial equity over the past several years. That equity can be a valuable financial resource, but deciding how to access it — or whether you should — requires careful consideration.
A home equity refinance, often structured as a cash-out refinance, replaces your current mortgage with a larger loan. After your existing mortgage is paid off, you receive the remaining funds in cash. Before comparing loan options, estimate your home’s current value with a home value calculator and consider how you plan to use your equity.
Start by deciding whether refinancing makes sense
Tapping into your home’s equity can help fund major expenses, but replacing your mortgage isn’t always the best approach. Your current interest rate, available equity, borrowing goals, and how long you plan to stay in your home all help determine whether a cash-out refinance is the right fit.
A cash-out refinance may be worth considering if you:
- Have built significant equity in your home
- Need a lump sum to cover a major expense, such as a renovation or debt consolidation
- Can qualify for favorable loan terms
- Plan to stay in your home long enough to recover the closing costs
On the other hand, if you already have a low mortgage rate, refinancing may increase your borrowing costs. In that situation, a home equity loan or home equity line of credit (HELOC) may allow you to access your equity while keeping your existing mortgage.
Compare your home equity financing options
Each option works differently, and the right choice depends on how you plan to use the funds and whether you want to replace your current mortgage. For example, if you’re remodeling your kitchen and know exactly how much you’ll spend, a home equity loan may offer predictable payments. If you’re completing several projects over the next few years, a HELOC may provide more flexibility because you can borrow only what you need during the draw period.
| Option | How it works | Best for |
| Cash-out refinance | Replaces your existing mortgage with a larger loan and pays you the difference in cash | Homeowners who want one mortgage and need a lump sum |
| Home equity loan | Leaves your current mortgage in place and adds a second loan with fixed payments | Homeowners who want to keep their existing mortgage rate |
| HELOC | Provides a revolving line of credit secured by your home | Ongoing expenses or projects completed over time |
Determine how much equity you have
Before applying for any type of home equity financing, find out how much equity you’ve built. Lenders use your home’s current value and your remaining mortgage balance to determine how much you may be able to borrow.
To estimate your equity:
- Estimate your home’s current market value with a home value calculator
- Subtract your remaining mortgage balance
- The difference is your estimated equity
Keep in mind that lenders typically won’t let you borrow against all of your equity.
Understand your loan-to-value ratio
Lenders also evaluate your loan-to-value (LTV) ratio, which compares your mortgage balance to your home’s appraised value.
For example:
- Home value: $500,000
- Mortgage balance: $300,000
- Home equity: $200,000
- LTV: 60%
Many lenders prefer that borrowers retain at least 20% equity after a cash-out refinance, though requirements vary by lender and loan program.
Consider the full cost of borrowing
Refinancing can help you access your home’s equity, but it’s important to compare the full cost of the loan before moving forward.
Consider:
- Closing costs: These may include origination fees, appraisal costs, title services and other lender fees.
- Interest rate: Compare the new rate to your existing mortgage rate. If today’s rates are higher, refinancing could increase your borrowing costs.
- Monthly payment: A larger loan balance or a different loan term may change your monthly payment.
- Total interest paid: Extending your repayment period can increase the total interest you pay over the life of the loan.
Ask your lender for a detailed loan estimate so you can compare offers side by side.
Questions to ask before applying
Before applying, take time to think through how you’ll use the funds and how refinancing fits into your overall financial plans. Answering a few key questions can help you choose the option that best meets your needs.
- Why do I need to borrow against my home equity?
- How much money do I actually need?
- Will the financial benefits outweigh the closing costs?
- How long do I plan to stay in my home?
- Would a home equity loan or HELOC better fit my situation if I want to keep my current mortgage?
Make an informed decision about your home equity
Before deciding how to access your home equity, estimate your home’s value, review your mortgage balance and compare your financing options. If you’re unsure which approach makes the most sense, a qualified mortgage professional can help you evaluate whether a cash-out refinance, home equity loan or HELOC best supports your goals.