Yes. Taking out equity increases your mortgage debt, and it does so no matter which method you use. A cash-out refinance replaces your existing mortgage with a larger one. A home equity loan or a home equity line of credit (HELOC) leaves the first mortgage alone but adds a second loan secured by the same house. Either way, you owe more against your home the day the loan closes than you did the day before, and your monthly obligations rise to match.
Cash-Out Refinance: One Bigger Mortgage
A cash-out refinance pays off your current mortgage and puts a new, larger one in its place. The lender uses part of the new loan to satisfy the old balance and hands you the difference as a lump sum. Owe $200,000 and want $50,000 in cash? Your new mortgage starts at $250,000 before fees.
Closing costs typically run 2% to 6% of the new loan amount. Many borrowers roll those costs into the balance instead of paying them at the table, which pushes the recorded loan higher still. In the example above, folding in closing costs could bring the balance to roughly $257,000 to $265,000. You end up with a single mortgage that is meaningfully bigger than the one it replaced.
Home Equity Loan or HELOC: A Second Loan on Top
A home equity loan or a HELOC doesn’t touch your first mortgage. It sits behind it as a second lien, which means your first mortgage keeps its balance, its rate, and its schedule, and a separate second obligation is recorded against the property. Your total debt on the home goes up by the full amount of the new loan.
A home equity loan gives you a lump sum at a fixed rate, repaid in set monthly installments. A HELOC gives you a credit limit you can draw from during a draw period that commonly lasts around 10 years, often with interest-only payments on what you’ve borrowed. When the draw period ends, you enter a repayment period of roughly 10 to 15 years covering both principal and interest.1Consumer Financial Protection Bureau. What You Should Know About Home Equity Lines of Credit
With either product, you now have two monthly payments going to two different lenders. That matters if money gets tight: the second-lien lender has an independent legal claim against your home and can foreclose on that loan even if you’re current on the first.
How Much Equity You Can Actually Borrow
Lenders don’t let you drain your equity to zero. The main limit is the loan-to-value (LTV) ratio, which compares your mortgage debt to the appraised value of the home.
For a conventional cash-out refinance on a primary residence, Fannie Mae caps LTV at 80%, so at least 20% equity has to remain after closing. Investment properties are tighter: 75% LTV on a single unit and 70% on multi-unit properties.2Fannie Mae. Eligibility Matrix FHA cash-out refinances also cap at 80%. VA cash-out refinances are more generous, allowing eligible veterans to borrow up to 100% of the home’s value.3Veterans Benefits Administration. Circular 26-18-30
For HELOCs and home equity loans, lenders look at the combined loan-to-value (CLTV) ratio, adding your first mortgage balance and the new second lien together and comparing that total to the home’s value. Most lenders cap CLTV between 80% and 90%, though limits vary by lender and product.
What Happens to Your Monthly Payment
A bigger balance means a bigger payment. After a cash-out refinance, your single mortgage payment grows to cover the larger principal. With a home equity loan or HELOC, you keep your original payment and add a second one on top. In both cases, the cost of the equity you pulled out shows up in your monthly budget right away.
Lenders check whether you can absorb that higher payment through your debt-to-income (DTI) ratio. For conventional loans underwritten manually, Fannie Mae generally limits total DTI to 36%, with room up to 45% for borrowers with strong credit and cash reserves. Loans run through automated underwriting can go as high as 50%.4Fannie Mae. Debt-to-Income Ratios Federal rules require the lender to make a good-faith determination that you can repay the loan before approving it.5Federal Register. Ability-to-Repay and Qualified Mortgage Standards Under the Truth in Lending Act
A New Rate and a Reset Clock
A cash-out refinance gives you a new interest rate based on today’s market, not the rate you locked in years ago. Cash-out rates tend to run about a quarter to a half percentage point higher than standard refinance rates because lenders view them as slightly riskier. As of early 2026, the national average 30-year fixed refinance APR is around 6.6%. The lender must provide a Loan Estimate showing the exact rate, fees, and projected payments before you commit.6Consumer Financial Protection Bureau. 12 CFR Part 1026 – Section 1026.19 Certain Mortgage and Variable-Rate Transactions
The long-term cost people miss is the reset of the repayment clock. If you’ve already been paying for 10 years and take out a new 30-year cash-out refinance, you’re now on the hook for 40 years of mortgage payments in total. Even at a lower rate, restarting the amortization schedule means more of your early payments go to interest and less to rebuilding equity.
Home equity loans carry a fixed rate that’s typically higher than a first-mortgage rate. HELOCs usually carry a variable rate tied to a benchmark index, so the payment can rise or fall over time. Neither one restarts the amortization on your first mortgage, but both stack additional interest costs onto your overall borrowing.
PMI Can Come Back
If a cash-out refinance pushes your LTV above 80%, you’ll likely have to carry private mortgage insurance (PMI), which protects the lender if you default. For conventional loans, mortgage insurance coverage requirements begin at 80.01% LTV.7Fannie Mae. Mortgage Insurance Coverage Requirements PMI is an added line on your monthly payment, and it stays in place until your equity climbs back to the required level.
This catches people who had already paid their mortgage below the 80% line and dropped PMI. Borrowing enough equity to push the balance back above that threshold brings PMI back with it—an easy cost to overlook when deciding how much cash to take out.
The Three-Day Right to Cancel
If you close on a cash-out refinance, home equity loan, or HELOC secured by your primary residence and change your mind, federal law lets you back out. You can cancel the transaction for any reason until midnight of the third business day after closing.8Office of the Law Revision Counsel. 15 USC 1635 – Right of Rescission as to Certain Transactions Cancel in time and you owe nothing; the lender must return any money you paid and release the lien within 20 days. If the lender didn’t provide the required disclosures at closing, that window extends to three years. The right to cancel doesn’t apply to a mortgage used to buy a home, only to refinances and new equity borrowing on a home you already own.