Is a HELOC “cheaper” because the payment is lower?

Early IO draws can show smaller cash outflows while balance + index risk remain—compare paths, not first-month payment.

Does cash-out always beat a second?

Only if blended rate + closing costs + hold horizon beat keeping a cheap first and adding a second—model both.

Home Equity Borrowing: Second Liens, Cash-Out & Combined LTV

Updated May 2026. Not tax advice—interest deductibility depends on use of proceeds under IRS rules.

Three mechanical paths (not brands)

Cash-out first lien — new larger first mortgage; one payment; full mortgage closing.
Fixed home equity loan (second) — lump sum; amortizing; rate often fixed for term.
HELOC (second, revolving) — draw period then repayment; rate typically variable; payment path risk.

Side-by-side product table: HEL vs HELOC vs cash-out refinance. If you like your first-lien coupon and only need payment relief on the same note, see recast vs refinance.

Combined LTV (CLTV) is the guardrail

CLTV (simplified): (first-lien principal balance + drawn second-lien balance) ÷ credible property value. Investor overlays, AVM vs appraisal, and undrawn HELOC capacity still matter for approvals—think “stacked debt,” not only the first mortgage.

Opening a HELOC before PMI cancellation can change approval math—model CLTV paths, not “unused line” optimism.

Cost hub crosswalk

Equity products still carry APR/fee logic—see mortgage costs pillar and cost hub.

Mortgage calculator

Reference sources

CFPB — What is a home equity loan?
OCC — Consumer protection (bank regulator context)

Home equity borrowing: lien stack, CLTV, and payment paths

Three mechanical paths (not brands)

Combined LTV (CLTV) is the guardrail

Cost hub crosswalk

Reference sources

FAQ