By Trish Reedy, Founder & Loan Officer, Planted Local Lending · NMLS #304737 · Updated October 2026
The quick answer: Yes. If you have equity in your home, you can use it to pay off higher-interest debt in one of three ways: a cash-out refinance, a HELOC, or a home equity loan. In October 2026, with credit cards averaging over 22% and 30-year mortgage rates around 7.4%, the right move for most homeowners with a low existing rate is to keep the first mortgage and add a second lien — not refinance the whole thing. A cash-out refi only wins when your current rate is already close to today's.
Here's the conversation I have almost every week.
Someone calls. They've got a great mortgage — 2 or 3-something percent, from back in 2020 or 2021. They also have $30, $40, sometimes $50 thousand in credit card debt that crept up on them. Life happened. A roof, a kid's tuition, rising expenses, a slow year in their business.
And they ask: "Can I use my house to fix this?"
Usually, yes. But how you do it matters more than whether you do it. The wrong structure can cost you hundreds of thousands of dollars over the life of your loan. The right one can drop your monthly outflow by hundreds or more and give you immediate relief.
Let's walk through it like I would if you were sitting across from me.
Your equity is the gap between what your home is worth and what you owe. Most lenders let you borrow against it up to a combined 80% of your home's value — sometimes more on a second lien. Here's how each tool taps it.
A cash-out refinance replaces your current mortgage with a bigger new one and hands you the difference in cash. One loan, one payment, one rate.
The catch? Your whole balance moves to today's rate. Not just the new money. If you're sitting on 3.25%, that's a big deal.
What lenders look for on a conventional cash-out (per Fannie Mae's Selling Guide):
FHA and VA have their own cash-out rules. VA, in particular, can go higher than 80% for eligible veterans.
A HELOC is a second mortgage that works like a credit card secured by your home — you draw what you need, and your first mortgage stays untouched. Bankrate's national average was 7.34% as of October 14, 2026 (Bankrate).
The catch? Most HELOCs are variable. Your rate moves with the prime rate. Many also start with an interest-only draw period, which feels great until the repayment period kicks in.
A home equity loan is a fixed-rate, fixed-term second mortgage paid out as one lump sum. Bankrate's average was 8.70% on a 10-year term as of October 14, 2026 (Bankrate).
The catch? A slightly higher rate than a HELOC today. But you know your payment and your payoff date on day one. For debt consolidation, I love that. A finish line is the whole point.
Cash-out refi | HELOC | Home equity loan | |
|---|---|---|---|
Keeps your current mortgage rate | No | Yes | Yes |
Rate type | Fixed (usually) | Variable (usually) | Fixed |
How you get the money | Lump sum at closing | Draw as needed | Lump sum at closing |
Typical term | 15–30 years | 10-yr draw + up to 20-yr repay | 5–30 years |
Closing costs | Full refi costs (often 2–5%) | Often low or none | Low to moderate |
Best fit | Your current rate is near today's rate | Flexible needs, disciplined borrower | One-time payoff with a hard end date |
Meet a homeowner I'll call Jen. She's a composite of the calls I get from Overland Park to Lee's Summit to Littleton.
Goal: get the cards paid off in a reasonable timeframe without wrecking her budget. Here's how each path pencils out.
Option | Rate on the $40K | Monthly (mortgage + debt) | Interest on the $40K | What happens to the 3.25% |
|---|---|---|---|---|
Keep paying cards (5-yr payoff) | 22.36% | $2,419 | $26,778 | Kept |
HELOC, repaid over 10 yrs | 7.34% (variable) | $1,777 | $16,577 | Kept |
Home equity loan, 10 yrs | 8.70% (fixed) | $1,806 | $20,028 | Kept |
Cash-out refi, new 30-yr | 7.40% (fixed) | $2,149 | See below | Gone |
Read that cash-out row twice. Jen's new loan would be about $310,400 (old balance + $40K + roughly $6,000 in closing costs). Her monthly payment jumps to $2,149. And total mortgage interest climbs from about $119,400 left on her old loan to about $463,300 on the new one. That's the higher rate plus restarting a 30-year clock.
The HELOC or home equity loan? She drops her monthly outflow by $600+, keeps her 3.25%, and is debt-free on those cards in 10 years — sooner if she pays extra.
That's why I tell people: don't trade a 3% mortgage to fix a $40,000 problem. Put the fix on top of it.
Assumptions: 30-year rate from Freddie Mac PMMS via FRED, 7.40% week of Oct 15, 2026. HELOC and home equity rates from Bankrate, Oct 14, 2026. HELOC modeled as fully amortizing at today's rate; real HELOC rates move. Payments are principal and interest only — no taxes or insurance. Your numbers will differ.
Sometimes. Here's my honest read after structuring a lot of these.
If the debt keeps growing no matter what you do, the right first call might be a nonprofit credit counselor, not a lender. I'll tell you that straight.
Here's the thing a bank won't say out loud: they'll offer you their HELOC or their cash-out refi. That's it.
At Planted Local Lending, I'm a broker. I shop your scenario across lenders, compare a second lien against a full refi side by side, and show you the math — like the table above, but with your real numbers. Sometimes the answer is "don't touch your house." I'll say that too.
We work with homeowners across the Kansas City metro on both sides of State Line and along Colorado's Front Range. Everything we do comes by referral, which means your experience is the only marketing I've got.
Want to see your numbers or what your home might be worth? Reach out to me here and I'll run a no-pressure comparison.
Keep reading: How much house can you really afford? · Why a bank might not be your best mortgage option · How sports betting can affect your mortgage approval
Yes. A HELOC or home equity loan sits behind your current mortgage as a second lien. Your first mortgage, rate, and payment stay exactly the same.
If your current mortgage rate is well below today's rates, a HELOC or home equity loan is usually better because you keep your low rate. A cash-out refinance tends to win only when your existing rate is close to or above current market rates.
Most lenders cap total borrowing at about 80% of your home's value across all loans, though some second-lien lenders go to 85–90%. On a $425,000 home, 80% is $340,000 — minus what you already owe.
On a conventional loan, the mortgage being paid off generally must be at least 12 months old, and you need to have been on title at least 6 months, per Fannie Mae guidelines.
There's usually a small, temporary dip from the credit inquiry and new account. Paying cards down to low balances often helps your score over time because it lowers your credit utilization.
Generally no. Under current IRS rules, home equity interest is deductible only when the funds buy, build, or substantially improve the home securing the loan. Confirm with a tax professional.
You're converting unsecured debt into debt secured by your home. If you can't make the payments, you could lose the house. The second biggest risk is running the cards back up.
Yes. Both offer cash-out refinance programs with their own rules. VA cash-out can allow higher loan-to-value for eligible veterans, which can help when equity is thinner.
Trish Reedy is the founder and loan officer of Planted Local Lending, a 100% referral-based mortgage brokerage serving Kansas, Missouri, Colorado, and Michigan. She's known for structuring loans for every borrower in every scenario — from first-time buyers to self-employed borrowers and investors.
This article is for educational purposes only and isn't a commitment to lend or an offer of credit. Rates, terms, and programs change and are subject to credit approval, property eligibility, and underwriting. Example figures are illustrative. Using home equity to repay unsecured debt puts your home at risk if you can't make payments. Planted Local Lending is not a tax advisor; consult a CPA about deductibility.
