For veterans and military families, tapping equity usually comes down to two solid choices: a VA cash‑out refinance (one new first mortgage, potentially high LTV and no monthly mortgage insurance) or a fixed‑rate home equity loan (second lien, predictable payment, keeps your great first‑mortgage rate intact). The right answer depends on your current rate, how long you’ll keep the home, and whether you need flexibility or payment certainty.
If you want a quick way to compare payment, APR, and total cost before locking anything, platforms like Tiger Loans offer a range of solutions tailored to different financial needs and can run side‑by‑side scenarios so you’re not guessing.
Core differences in plain English
- VA cash‑out refinance: Replaces your existing mortgage with a larger VA‑backed first lien. You can often borrow up to a higher loan‑to‑value than many conventional options, with no PMI, and roll costs into the loan. Best when today’s first‑lien rate meaningfully beats your current rate and you want one payment.
- Home equity loan (second mortgage): Adds a fixed‑rate, fixed‑payment loan on top of your current mortgage. Perfect when you already have a low first‑mortgage rate you don’t want to lose, and you need a defined lump sum for renovations, tuition, or debt consolidation.
Eligibility snapshot
- VA cash‑out: Requires VA eligibility (COE), acceptable credit, verifiable income, and residual‑income thresholds. Appraisal and funding fee apply (exemptions for certain disabled veterans).
- Home equity loan: Any eligible homeowner can apply, but lenders lean on combined loan‑to‑value (CLTV) caps (often 80%–85%), credit score, and debt‑to‑income (DTI). Owner‑occupied single‑family properties are simplest; condos, 2–4 units, or investment homes can face tighter limits.
When a VA cash‑out usually wins
- Your current rate is high. Replacing it with a lower VA rate reduces total cost and simplifies payments.
- Large cash need. First‑lien pricing typically beats second‑lien rates for bigger amounts, and VA’s high allowable LTV can unlock more funds.
- You want to eliminate PMI or avoid it entirely. VA loans do not require monthly mortgage insurance.
- You’ll keep the home long enough to beat fees. Closing costs and the funding fee are real—give the savings time to outrun them.
When a home equity loan is the smarter move
- You locked a stellar first‑mortgage rate. Protect it. Add a fixed second for the new need.
- You want payment certainty with a short payoff path. Five to ten years clears the debt quickly and limits lifetime interest.
- You’re consolidating debt and need structure. Fixed rate + fixed term = forced discipline.
- You may move soon. Second‑lien costs are often lower than a full refinance; if the horizon is short, fees matter.
Rate, cost, and payment realities
- Rates: First‑lien VA pricing is often lower than second‑lien home equity rates. But if your existing first mortgage is already excellent, a VA cash‑out could raise your rate on the entire balance. That’s the trap—run the blended math.
- Fees: VA cash‑out includes standard closing costs plus a VA funding fee (unless exempt). Home equity loans charge appraisal/valuation, title, recording, and sometimes origination. Always compare APR to APR, not just the headline rate.
- Payments: VA refi = one payment. Home equity loan = two payments, but the second is fixed and predictable.
Taxes (short and strict)
Interest may be deductible only when proceeds are used to buy, build, or substantially improve the home securing the loan. Using equity for general expenses or debt payoff usually doesn’t qualify. Confirm with a tax professional.
Risks to price in
- Your home is collateral. Missed payments can lead to foreclosure—budget for your worst month, not your best.
- Term reset (VA refi). Extending to a fresh 30‑year term lowers the payment but can increase lifetime interest. Counter with automatic extra principal.
- Fee drag. A tiny rate win can be erased by funding fees and closing costs. Do a month‑by‑month break‑even.
- CLTV squeeze (home equity loan). High CLTV invites worse pricing or denials. Borrow a bit less if you’re near the cap.
Mid‑article gut check
If you’re eligible and want the VA advantages but still comparing formats, VA Loans can offer favorable terms versus many conventional products—sometimes beating a second lien on total cost while keeping payments manageable.
A quick decision framework
- Is the new VA rate clearly better than my current mortgage rate?
- Yes → VA cash‑out may win—verify break‑even.
- No → Keep the first mortgage; consider a fixed home equity loan.
- Yes → VA cash‑out may win—verify break‑even.
- How long will I keep the home?
- Short horizon → Lean second lien (lower upfront drag).
- Long horizon → VA cash‑out can shine if the rate is right.
- Short horizon → Lean second lien (lower upfront drag).
- Do I need flexibility or certainty?
- Certainty → Fixed home equity loan.
- Flexibility for phased costs → Consider a HELOC with rate‑lock features.
- Certainty → Fixed home equity loan.
- What’s my stress‑case budget?
- If a rough month would strain you, choose the shortest affordable term and set automatic extra principal.
- If a rough month would strain you, choose the shortest affordable term and set automatic extra principal.
Bottom line
If today’s VA pricing materially undercuts your current rate and you’ll stay put long enough to beat fees, a VA cash‑out refinance can deliver the cleanest, lowest‑cost path with one payment and no PMI. If you’ve already nailed a fantastic first‑mortgage rate, a fixed home equity loan lets you tap cash while keeping that advantage. Model both—APR, fees, break‑even, and stress‑case payments—then pick the option that still works when orders change and life gets loud.
