The Quick Read: The payment a VA cash-out frees is the monthly debt you retire, minus the amount the new mortgage payment rises. Financing the funding fee raises the new balance, so it trims the benefit slightly rather than creating a new cost line. Whether anything is freed at all depends on the old loan’s rate and term, the debts paid off, and the fee tier you fall into.
Key Terms Defined
Funding fee: a one-time VA charge on the loan, which can be financed into the balance and is waived for exempt borrowers.
First versus subsequent use: whether you have used your VA home loan benefit before, which sets the cash-out fee tier.
Reasonable value: the appraiser’s value for the home, which is the ceiling the whole loan, fee included, must fit under.
Net tangible benefit (NTB): a lender-documented test showing the refinance is in the veteran’s financial interest.
Residual income: the money left each month after major obligations, which is the controlling VA underwriting test.
Seasoning: the waiting period before an existing loan can be refinanced.
How Does a Financed Fee Become a Monthly Payment?
A financed funding fee is added to the loan balance, and the monthly payment is then recalculated on the larger balance. The fee is not billed as its own monthly charge. It simply makes the loan slightly bigger.
Here is the fee structure. On a cash-out refinance, VA’s funding fee page lists 2.15% on first use and 3.3% after first use. Refinance fee rates don’t change with down payment, so putting more cash in does not lower them. These rates apply to loans closing on or after April 7, 2023 and before November 14, 2031, per VA Circular 26-23-06, Exhibit B. Older articles quoting 2.3% and 3.6% describe a prior period.
The fee is a percentage of the loan amount, not the home’s value. Financing it enlarges the base it is calculated on, so the pricing engine on the actual file does the exact math.
The method you can follow yourself:
1. Start with the balance you owe on the current mortgage.
2. Add any debts the new loan pays off and any cash you want to take out.
3. Add the funding fee for your tier, if you are not exempt.
4. That total is the new loan. Its payment depends on the new rate and term.
Notice what the fee does here. It is one more layer in the balance. Because it is a modest percentage of the loan, its effect on the monthly payment is small compared with the effect of the rate and term change. Across the wholesale programs Lendmire places VA files with, the fee is rarely the factor that decides whether a refinance helps the borrower. The rate and term swap and the debts retired usually do.
What Actually Moves the Payment?
Three separate drivers move the payment, and most online examples blend them together. Pull them apart and the picture gets clearer.
The rate and term change. If the new loan carries a lower rate than the old one, the payment on the same balance falls. If the new term is longer, the payment falls further, though you pay interest for more years.
The cash and debts added. Every dollar of cash out or debt paid off adds to the balance, which pushes the payment up. This is the main reason a cash-out often raises the mortgage payment even when the overall budget improves.
The financed fee. This pushes the payment up slightly, and it also reduces the room you have for cash out, as a later section shows.
A government consumer advisory cautions that a cash-out loan seldom lowers the payment compared with the original mortgage. That caution is fair. The “freed” payment usually comes from the debts that disappear, not from the mortgage itself getting cheaper.
The Net-Freed-Payment Equation
The equation is simple: the monthly payments you eliminate, minus the increase in your mortgage payment, equals the monthly amount freed.
Picture a homeowner carrying a car loan, several credit cards and a mortgage. The cash-out pays off the cards and the car loan. Those monthly obligations vanish. The mortgage payment rises because the balance is larger. If the vanished obligations exceed the increase, the difference is freed cash flow. If not, nothing is freed.
Put the fee on its own line when you review a file. A good worksheet has these rows:
| Line | What to ask for |
|---|---|
| Old mortgage payment | Current payment, taxes and insurance included |
| Debts retired | Each monthly payment that goes away |
| New mortgage payment | Payment on the new balance, fee included |
| Financed fee | The fee amount added to the balance |
| Net change | Debts retired minus payment increase |
Lendmire’s brokers see this worksheet constantly. Borrowers tend to focus on the rate, but the net-change row is the number that tells them whether the refinance changes their month.
When Nothing Is Freed
A VA cash-out does not always lower your monthly outflow.
Say the old loan has a low rate and a short remaining term. Replacing it with a new loan at a higher rate resets the clock and adds the fee to the balance. Even after paying off some debts, the new payment may land close to where you started, or above it.
Three situations tend to produce a small or negative result:
- The debts being paid off carry low payments to begin with.
- The old mortgage rate is much better than the new one.
- The new loan stretches the term, lowering the payment but raising total interest.
None of these automatically makes the loan a mistake. A veteran may want the cash for a home repair, a medical expense or a transition. But in those cases the goal is not a freed payment. Judge the loan on total cost and purpose, and be honest that a lower payment achieved by stretching the term costs more in interest over time.
Does the Fee Change the Math If You’re Exempt?
Yes. The funding fee only applies to borrowers who aren’t exempt. It is waived for veterans receiving compensation for a service-connected disability and for the other exempt groups, as VA News explains. For those borrowers the new balance contains only the old payoff, debts retired and cash out.
Compare two borrowers with identical loans. The non-exempt one carries a slightly larger balance and a slightly higher payment. The exempt one doesn’t. The gap is real but modest, and it is a good reason to confirm your exemption status on the Certificate of Eligibility before comparing numbers. For a closer look at how the fee adds to the payment, see Lendmire’s piece How Much a VA Cash-Out Funding Fee Adds to Your Monthly Payment.
How the Fee Uses Up Your Cash-Out Room
The financed fee competes with your cash out. A VA cash-out can reach 100% of the appraised value, including the financed fee. VA’s Circular 26-19-05 says a financed fee cannot push the total loan above the property’s reasonable value, and LTV is measured as the total loan, fee included, divided by that value.
So when equity is tight, every bit of fee financed is cash you do not receive. A borrower with plenty of equity barely notices. A borrower near the ceiling may find the fee shrinks the cash out, or that some costs must be handled another way.
Costs work a certain way here. Allowable fees and other closing costs may be paid from loan proceeds, but only the funding fee (and energy-efficiency improvements) can be added to increase the loan amount. That means the cash you actually receive is the cash-out amount less closing costs.
What Rules Decide Approval?
Three tests do most of the work: net tangible benefit, residual income and seasoning.
Net tangible benefit. Federal law requires a refinance to give the veteran a net tangible benefit, with the lender documenting a test. The lender worksheet in Circular 26-19-05, Exhibit A lists eight conditions, and a cash-out must meet at least one. Examples include eliminating monthly mortgage insurance, a shorter term, a lower rate, or a lower payment than the loan being refinanced.
Residual income. Across the wholesale programs Lendmire works with, residual income is the controlling underwriting test. The 41% debt-to-income figure is a guideline, not a cap, and a higher ratio needs residual income well above the table.
Seasoning. When refinancing an existing VA loan, the program requires the later of 210 days from the first payment and the sixth monthly payment, and the same seasoning applies to the VA cash-out.
Typical wholesale programs start at a 580 decision score, with some lenders setting a higher floor. Everything remains subject to lender guidelines and full file review, and nothing here is a commitment to lend.
Which Refinance Fits: Cash-Out, IRRRL or Staying Put?
The right choice depends on what you need the loan to do.
| Factor | VA Cash-Out | IRRRL | Keep Current Loan |
|---|---|---|---|
| Cash to borrower | Yes | No | No |
| Funding fee | 2.15% / 3.3% | 0.5% | None |
| Appraisal | Yes | No VA appraisal | None |
| Loan types refinanced | Any into VA | Existing VA loan only | N/A |
The IRRRL is the better tool if you already hold a VA loan and simply want a lower rate or a move from adjustable to fixed. It cannot give cash out. The VA cash-out can refinance any loan type into VA and reach 100% of the appraised value, including the financed fee. Staying put wins when your current rate and term are already strong and the cash is not needed.
For a deeper look at the Lendmire VA cash-out refinance program, see how the equity limit and underwriting fit your file.
Where the General Rule Breaks
A few edge cases change the picture.
- Occupancy. A VA cash-out is for a home you will live in.
- Tight value. If the appraisal comes in low, the financed fee can leave little or no cash out.
- Free-and-clear homes. Some lender guidelines treat a home owned free and clear differently for a refinance, so confirm early whether your situation fits.
- Manufactured homes. A veteran whose only past VA loan bought a manufactured home still pays the first-time fee rate.
- Type I versus Type II. A Type I cash-out does not exceed the payoff of the loan being refinanced. Type II means the loan amount is more than the payoff. The recoupment and rate rules in 38 U.S.C. 3709 apply differently to each, per the Federal Register notice.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
What to Ask Before You Commit
Get these numbers in writing and compare them side by side:
1. The funding fee amount for your tier, or confirmation you are exempt.
2. The payoff figures for every debt the loan will retire.
3. The new payment and the old payment, taxes and insurance included.
4. The total loan against the appraised value.
5. Which net tangible benefit condition the file meets.
6. The cash you actually receive after costs.
Your Loan Estimate and Closing Disclosure will lay out the final costs. Compare them to what you were quoted.
Frequently Asked Questions
Is the VA funding fee a monthly charge?
No. It is a one-time fee. When financed, it joins the loan balance, so it affects the payment only because the balance is larger.
Can I pay the fee in cash instead of financing it?
Yes, many borrowers do. Paying upfront keeps the balance, and therefore the payment and total interest, lower. Financing preserves cash at closing. The choice is a tradeoff between cash now and cost over time.
Will my payment go down?
Not necessarily. It can fall if the loan retires debts, ends monthly mortgage insurance or replaces a higher rate. It can also rise, since cash out and the fee add to the balance. The lender must still document a net tangible benefit.
Does a bigger down payment lower the cash-out fee?
No. VA states that refinance fee rates don’t change with down payment. The cash-out tiers are 2.15% on first use and 3.3% after.
What if I’m exempt from the fee?
Then nothing is added for the fee, which leaves more cash-out room and a slightly smaller balance. Exemption applies to veterans receiving compensation for a service-connected disability and other exempt groups.
If you are weighing a cash-out refinance on the home you live in against keeping the loan you have, Lendmire can help you compare the programs and the equity each one reaches.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire (NMLS# 2371349) is a mortgage broker licensed for consumer lending in 16 states. Lendmire arranges FHA, VA, conventional and jumbo purchase and refinance loans through wholesale lenders; every file is underwritten by the lender under the applicable program guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. VA.gov: Funding fee and closing costs
2. VA Circular 26-23-06, Exhibit B
3. VA News: Funding fee, who pays and who is exempt
5. VA Circular 26-19-05, Exhibit A
This article is part of Lendmire’s VA Loans series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: How Much the Fee Exemption Changes Cash and Payment on a VA Cash-Out · How to Move Several Balances Into One VA Cash-Out Payment · How to Document the Fee Exemption or Claim a Refund on a VA Cash-Out
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.