Do You Pay Mortgage Insurance On A Cash-out Refinance — The Quick Read: Usually not on a standard conventional loan, but it depends on the loan type. A conventional cash-out refinance on a home you live in tops out at 80% of the home’s value, and mortgage insurance starts above that line. FHA cash-out loans carry mortgage insurance no matter how much equity you keep. VA loans skip monthly insurance and charge a one-time funding fee instead.
The Short Version by Loan Type
The words “cash-out” do not trigger mortgage insurance. Your loan type and your final loan-to-value (LTV) do. Here is how the three main paths compare.
| Loan type | Mortgage insurance on cash-out? | Can it come off later? |
|---|---|---|
| Conventional | Generally none at the standard cap | Yes, if it applies at all |
| FHA | Yes, upfront and monthly | Usually only by refinancing |
| VA | No monthly insurance; funding fee | Not applicable |
Fannie Mae’s eligibility matrix caps a one-unit principal-residence cash-out refinance at 80% LTV. Two- to four-unit properties are capped at 75%. Mortgage insurance on conventional loans is required above 80% LTV. So a standard cash-out loan sits at or below the point where insurance begins. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
That is a consequence of the math, not a printed rule that says “cash-out means no insurance.” The distinction matters for the exceptions below.
Why Conventional Cash-Out Loans Usually Skip PMI
Private mortgage insurance (PMI) protects the lender when you have a thin slice of equity. At 80% LTV or below, you still own at least 20% of the home. The lender sees less risk, so it does not ask you to buy a policy. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
A cash-out refinance is built around that cushion. You borrow against your equity, but the program makes you leave a fifth of it in the house. The leftover equity is the reason insurance falls away.
The price you pay for the cushion is a different cost. Conventional cash-out loans carry pricing adjustments built into the loan itself, set by the agencies and the lender. Those show up on your Loan Estimate as part of the cost structure, not as an insurance line.
If you want the full mechanics of how a cash-out loan works, Lendmire’s plain-English cash-out refinance explainer walks through the steps. For program options, see Lendmire’s cash-out refinance programs.
When Conventional Cash-Out Can Still Carry Insurance
Insurance can appear in three situations.
You take a limited cash-out refinance instead. This is the rate-and-term lane. It lets you go up to 95% LTV on a one-unit principal residence, and 97% on some first-time-buyer programs. Above 80%, mortgage insurance applies. Cash back stays small, though, so it is not really a cash-out product. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
Your loan gets reclassified. Say you want to pay off a second mortgage that was not used to buy the home. Under agency rules, that turns a rate-and-term loan into a cash-out loan. The 80% cap then applies. If you were counting on 95%, you will have less room.
Closing costs push the number up. Costs you roll into the new loan count toward your LTV. Pull cash right up to the cap, add costs, and you can cross the line.
The Exception: A Wholesale Lane Above 80%
Across the wholesale programs these files go through, one lane reaches 89.99% LTV with no mortgage insurance. It requires a 680 score, a 50% total ratio, a thirty-year fixed loan, a primary residence and a conforming loan balance. It carries its own six-month seasoning requirement. It is not written in Texas, where the state constitution caps a homestead cash-out at the agency figure. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
This is a specific program, not a standard feature of cash-out loans. Eligibility and pricing vary by lender and file. Whether it fits you depends on full file review. It is also not a commitment to lend.
FHA Cash-Out: Insurance Comes With It
FHA is the clear “yes.” An FHA cash-out refinance carries an upfront premium, usually financed into the loan. It also carries an annual premium collected monthly. Both are called mortgage insurance premiums, or MIP.
HUD cut the cash-out ceiling on FHA loans in Mortgagee Letter 2019-11. The limit sits well below what FHA allows on its rate-and-term loans. Because you must leave equity in the house, the insurance does not come from thin equity. It is a feature of the FHA program.
Two details catch borrowers off guard:
- The monthly premium does not follow the 80% rule. FHA MIP is not governed by PMI cancellation rules. How long it lasts depends on the loan term and the LTV at origination.
- The common way out is refinancing. Once you have enough equity, a conventional refinance can replace the FHA loan and drop the premium.
Streamline refinances do not change this. The FHA Streamline is for people who already have an FHA loan, and it does not offer cash out. Premiums still apply.
VA Cash-Out: No Monthly Insurance, But a Fee
VA loans have no monthly mortgage insurance. They charge a one-time funding fee. On a VA cash-out refinance, that fee is higher than on a streamline, and the amount depends on whether you have used the benefit before. Some borrowers are exempt, so confirm your status at VA.gov.
The VA Interest Rate Reduction Refinance Loan (IRRRL) is the streamline version. Its funding fee is 0.5% unless you are exempt. An FDIC summary of the program notes you generally cannot take cash out through an IRRRL. The funding fee may be financed or paid in cash.
“VA means no cost” is a myth. The fee is real. It just is not a monthly insurance bill.
A Worked Picture in Percentages
Picture a home with 35% equity. Your current loan sits at 65% of its value. You want cash.
If your new loan lands at or below 80% of the value, closing costs included, a standard conventional cash-out loan carries no PMI. You could take a modest amount of cash or a larger one, as long as you stay under that ceiling.
Now say you want to go further, to 85%. A standard conventional cash-out loan will not go there. You would look at a limited cash-out structure, a wholesale lane built for that range, or a different plan. A cash-out loan with FHA keeps the insurance in place regardless.
Home appreciation helps here. If your home has grown in value, the same loan balance is a smaller share of what it is worth. That can leave room for cash while staying under the line. A new appraisal sets the value, so the number is not your guess or an online estimate.
What the Lender Checks Before Any Cash Comes Out
Mortgage insurance is one piece. These items decide whether the loan works at all:
- Seasoning. For a conventional cash-out loan, the first mortgage being paid off must be at least 12 months old, counted from note date to note date. The Fannie Mae Selling Guide lays out the cash-out rules. A borrower must also have been on title for 6 months, with exceptions for delayed financing, inheritance and legal awards.
- Appraisal. The value sets your LTV, which sets the cash available and whether insurance applies.
- Occupancy. The 80% figure is for a one-unit primary home. Two- to four-unit homes, second homes and investment properties are capped at 75%. That is the one-sentence answer for a second home: occupancy decides the leverage.
- Credit and ratios. Wholesale conventional programs start at a 620 decision score. The automated finding governs most files, with a total ratio ceiling of 50%.
Homes with no mortgage can qualify too. Fannie Mae permits cash-out on a property with no lien against it.
How PMI Comes Off When It Does Apply
If you end up with PMI, it does not last for the life of the loan. Federal rules give you two routes, per the Consumer Financial Protection Bureau:
1. You ask. You can request cancellation when your balance reaches 80% of the original value. You need a good payment record and no subordinate liens, and the servicer may ask for evidence your home has not lost value.
2. It ends automatically. The servicer must terminate PMI at 78% of the original value if you are current.
Two cautions. First, these rules apply to PMI you pay yourself. Lender-paid insurance is outside them. Second, they run off the original value. Home growth alone does not remove PMI. Some servicers allow removal under their own standards, which may require an appraisal.
A cash-out refinance also resets the clock. It replaces your old loan, so any PMI on the old loan ends at payoff. The new loan is tested on its own LTV from day one.
Is Paying Insurance Ever Worth It?
It is a fair question, and the honest answer is “sometimes.” The usual tradeoff is this: the cash you need may exceed what the 80% line allows. Your choices are to take less cash, wait and build equity, use a limited cash-out loan with a smaller cash-back amount, or accept insurance.
Think about it as a monthly line in your budget. FHA cash-out adds a monthly MIP for as long as the loan lasts. A conventional loan above the standard cap adds PMI that can come off later. VA adds no monthly insurance but costs a funding fee, usually financed into the balance.
If the cash goes to pay off high-cost debt, run the full comparison before you pick. Lendmire’s piece on cash-out refinancing to pay off debt covers that decision. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Key Terms Defined
LTV (loan-to-value): Your loan balance divided by your home’s appraised value. A higher number means less equity.
PMI (private mortgage insurance): Insurance on a conventional loan that protects the lender when your equity is thin. It can be cancelled.
MIP (mortgage insurance premium): The FHA version, with an upfront piece and a monthly piece. It generally cannot be dropped the way PMI can.
Funding fee: The one-time charge on a VA loan, in place of monthly insurance.
Limited cash-out (rate-and-term) refinance: A refinance that pays off your existing loan and closing costs, with only incidental cash back.
Seasoning: The waiting period a loan or ownership must meet before a refinance qualifies.
Frequently Asked Questions
Can I avoid mortgage insurance by taking less cash?
Yes. On a conventional cash-out loan, keeping your new LTV at or below the standard cap means no PMI. Closing costs you roll in count toward that number, so leave a small buffer. On FHA, taking less cash does not remove the premiums.
Does my old PMI carry over to a cash-out refinance?
No. The new loan pays off the old one, and the old insurance ends. Your new loan is tested at its own LTV. If it lands at or below the standard conventional cash-out cap, it typically needs no PMI.
Can I refinance out of FHA mortgage insurance?
Often, yes. A common path is refinancing into a conventional loan once your equity allows. You then pay PMI only if the new loan lands above 80% LTV. Whether it makes sense depends on your equity, credit and the full costs of the new loan.
Do VA cash-out refinances have mortgage insurance?
No monthly insurance. A one-time funding fee applies unless you are exempt, and it is higher on a cash-out loan than on an IRRRL. It may be financed into the loan.
Is a second home or rental treated the same way?
No. The 80% figure is for a one-unit primary residence. Second homes and investment properties carry a 75% cap, so occupancy decides how much cash you can reach.
Compare Before You Choose
If you are weighing a cash-out refinance against keeping the loan you have, Lendmire can help you compare the programs and the equity each one reaches. As a mortgage broker, Lendmire arranges these loans through wholesale lenders. Every figure above is subject to lender guidelines and full file review, and nothing here is a commitment to lend.
For the program’s current guidelines, see a scenario review with Lendmire.
For current guidelines and terms, see Lendmire’s refinance programs page.
About Lendmire
Lendmire, NMLS# 2371349, is a mortgage brokerage with consumer lending licenses in 16 states. Down payment assistance options are arranged alongside FHA, USDA and HUD-184 first liens through wholesale lending partners, and each application is reviewed individually by the lender. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Fannie Mae Eligibility Matrix
2. HUD Mortgagee Letter 2019-11
3. FDIC: VA Interest Rate Reduction Refinance Loan
4. Fannie Mae Selling Guide B2-1.3-03: Cash-Out Refinance Transactions
5. CFPB: When can I remove PMI from my loan?
This article is part of Lendmire’s Refinance series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: Cash-out Refinance For Home Improvements: What Lenders Require · Cash-out Refinance Vs A Second Lien: Choosing The Right Tool · Refinancing With Gaps In Employment Or A New Job
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Required disclosures. Lendmire (NMLS# 2371349) operates as a licensed mortgage broker, not a direct lender or depository. The discussion in this article is general in nature and should not be relied upon as financial, legal, or tax advice — every investment scenario is unique and should be reviewed by a qualified professional. Any loan inquiry is subject to lender underwriting, and this article is not a commitment to lend or a guarantee of approval. Mortgage rates, loan terms, and program guidelines vary by borrower, property, and state, and may change without notice. Equal Housing Opportunity. Verify licensure at NMLS Consumer Access.