This example compares the same $50,000 cash need and $400,000 starting combined debt. Under the stated assumptions, keeping the existing first mortgage has lower modeled cash outlay and lower remaining debt at five years. Different offers can produce a different result.
All rates, payments, fees, and borrower circumstances below are hypothetical assumptions, not current pricing, an offer, an approval, or an actual client outcome. Figures are rounded for display. No personal client records were used.
The household goal and assumptions
The hypothetical homeowner owes $350,000 with 25 years left and wants $50,000 for a defined project. Compare a fully amortizing separate home equity loan with a cash-out refinance. The separate loan here is not a variable-rate HELOC.
Assume the existing first rate is 3%, the separate $50,000 loan is 9% over 10 years, and the replacement $400,000 mortgage is 6.5% over 25 years. All are fixed-rate assumptions. Closing fees are $1,500 for the second loan and $6,000 for the replacement, paid in cash. No fees are financed.
Monthly cash flow and five-year position
| Modeled item | Keep first + separate loan | Replace first |
|---|---|---|
| Combined starting principal | $400,000 | $400,000 |
| Monthly principal and interest | $2,293 | $2,701 |
| Cash-paid fees | $1,500 | $6,000 |
| 60 payments plus upfront fees | $139,087 | $168,050 |
| Remaining secured principal at month 60 | $329,781 | $362,249 |
| Interest + fees through month 60 | $68,868 | $130,298 |
Calculations use standard monthly amortization at full precision, then round the displayed results. Comparing payments alone would miss the remaining debt and the ten-year second-loan payoff.
How I would read the comparison
In this model, repricing the larger first balance outweighs the higher rate on the smaller separate loan. The rate on the new cash alone does not tell the whole story. Both the payment and the future balance favor preserving the first under these assumptions.
That is not a rule that every low-rate mortgage must be preserved. Different first-mortgage terms, second-loan pricing, fees, borrowing amounts, or repayment horizons can change the answer. The next step is a comparison using the actual offers and household budget.
What this model deliberately leaves out
Taxes, homeowners insurance, HOA dues, tax deductions, investment returns, appreciation, and future refinancing are excluded. No mortgage insurance is assumed. Equal initial gross debt does not establish equal eligibility or net proceeds under every program.
The analysis does not determine credit approval, available equity, lien limits, or whether the proposed improvement is worthwhile. If the borrower instead chooses a HELOC, rate movement, draw timing, and repayment terms require a separate model.
Questions to carry into your own comparison
Does the lower second-loan rate matter more than my existing first?
Look at the amounts and terms of both balances, not a single rate.
Is the displayed interest-and-fee figure the same as monthly savings?
No. It reconciles cash outlay and remaining principal over five years; monthly cash flow is shown separately.
Continue with the relevant guide
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Reviewed October 27, 2026. Educational information; actual costs, eligibility, and program rules vary. Examples do not predict future rates or borrower results.