The Quick Read: Often, yes, when the new loan fits at or under 80% loan-to-value (LTV, the loan balance divided by the home’s value). A cash-out refinance pays off the old loan, so the old loan’s insurance ends with it. The new loan gets tested fresh. A standard conventional cash-out on a primary home caps at 80% LTV, so it generally carries no mortgage insurance. Government loans follow different rules.
What Actually Happens to the Old Insurance?
Nothing is “dropped” on the old loan. That loan is paid off at closing, and its insurance ends with it. The new loan then faces its own test.
That is the whole mechanic. The question is never “does refinancing erase my insurance?” It is “what does the new loan need?” Mortgage insurance is required on a conventional loan above 80% LTV, per the Fannie Mae Selling Guide. The FHFA says the same about the agencies’ charters. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Here is the shortcut most people miss. Conventional cash-out caps at 80% LTV on a one-unit primary home. That cap matches the insurance line exactly. So a conventional cash-out generally lands at or under the line where insurance starts. (That is an inference from two agency rules, not a sentence any agency prints.)
Quick Answer by Loan Path
| Leaving | Entering | Insurance outcome |
|---|---|---|
| Conventional with PMI | Conventional cash-out | Generally none at 80% LTV or less |
| FHA | Conventional cash-out | Can end FHA insurance if new loan fits |
| FHA | New FHA cash-out | Stays, with its own premiums |
| VA | VA cash-out | No monthly insurance; funding fee applies |
| Any | Limited cash-out above 80% | Mortgage insurance applies |
Cash-Out vs. Rate-and-Term: Why the Label Matters
A rate-and-term refinance, also called a limited cash-out refinance, swaps one loan for another with only incidental cash back. Across the wholesale programs Lendmire places files with, it reaches 95% LTV on a one-unit primary home, and up to 97% in the first-time-buyer programs where the existing loan is agency-owned. Above 80%, mortgage insurance applies. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
A true cash-out refinance lets you pull real equity, but it caps lower: 80% LTV on a one-unit primary residence and 75% on two- to four-unit homes. Second homes and investment property also sit at 75% on the programs Lendmire sees. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
Cash back on a limited cash-out is tiny. Fannie Mae limits it to the lesser of 2% of the new loan balance or $2,000. Take more, and the loan becomes a cash-out with the lower cap.
So the tradeoff is plain. A rate-and-term loan can go higher but keeps insurance above 80%. A cash-out loan stops at 80% and generally needs none.
The Equity Math, Without Dollar Figures
Picture a homeowner with 15% equity and PMI on a conventional loan. The balance is 85% of the home’s value. A cash-out at 80% LTV is not possible without bringing money to closing, because it would mean paying the loan down. Cash-out needs more equity than that. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Now picture 30% equity. The balance is 70% of value. A cash-out up to 80% LTV leaves 20% equity, and the new loan generally carries no mortgage insurance. Take a smaller amount of cash and you sit lower than 80%, with room to spare.
The rule of thumb: every dollar of cash you take raises your LTV. You can have cash or a lower LTV, not both. To drop insurance and take cash together, the new balance must still clear 80%. If it does not, a smaller cash-out, or none, is the answer.
On a refinance, the lender sets the value from an appraisal, an automated valuation or another acceptable method. A higher value helps your LTV. A lower one hurts it.
Conventional to Conventional
This is the cleanest path. You have PMI, your equity has grown, and you want cash. The new conventional cash-out tests at 80% or less, and PMI generally ends.
The seasoning rules are firm. Across the programs Lendmire places, the first mortgage being paid off must be at least 12 months old, counted note date to note date. Also, a borrower must have been on title for six months. Exceptions exist for delayed financing after a cash purchase, inheritance and legal awards. Fannie Mae’s cash-out rules spell these out, along with reserve requirements when the debt-to-income ratio (DTI) tops 45%. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
There is also a wholesale lane worth knowing about. It reaches 89.99% LTV with no mortgage insurance on a thirty-year fixed, primary residence, conforming balance. It needs a 680 score and a 50% ratio ceiling, plus its own six months of seasoning. It is subject to lender guidelines and is not written in Texas, where the state constitution caps homestead cash-out at the agency figure. Lendmire’s cash-out refinance programs page covers how these options compare.
FHA Borrowers: Two Very Different Exits
FHA insurance is where this question gets asked most. The answer depends on what you refinance into.
FHA into conventional. This can end FHA mortgage insurance entirely, if the new loan fits at 80% LTV or less. This is the exit most people want. Lendmire’s piece Cash-Out Refinance Mortgage Insurance Rules When Leaving FHA goes deeper. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
FHA into another FHA loan. Insurance stays. The new loan carries its own upfront and annual premiums. A cash-out does not shake it off.
The FHA Streamline is not a cash-out. It requires an existing FHA loan that is current, plus a net tangible benefit, per HUD. The loan stays FHA, so the insurance stays. It can lower your cost, but it does not end it. The streamline skips the appraisal and keeps the credit review limited.
One more note. FHA insurance on newer loans with a small down payment often lasts for the life of the loan, so check your own loan’s terms with your servicer. Fannie Mae’s consumer page on mortgage insurance says PMI is not forever, while FHA insurance is more complicated and may involve refinancing.
VA Borrowers: No Monthly Insurance, But a Fee
A VA cash-out has no monthly mortgage insurance. It has a one-time funding fee instead. The VA lists 2.15% for first use and 3.3% after. Some veterans are exempt.
The VA IRRRL is the streamline, and it is not a cash-out. It is VA-to-VA with no cash at closing. The funding fee is 0.5% unless exempt, with no VA appraisal and a net tangible benefit required. Seasoning is the later of 210 days and six payments.
A VA cash-out can take a non-VA loan into a VA loan. That ends PMI or FHA premiums on the old loan. A VA loan can be a good exit, but the fee is real, so weigh it.
Do You Need to Refinance at All?
Sometimes a more affordable way to drop conventional insurance is not refinancing. Run this check first.
You can ask your servicer to cancel PMI when the balance is scheduled to reach 80% of the home’s original value. The CFPB explains the conditions: a written request, a good payment history, no junior liens and no decline in value. At 78%, the servicer must terminate it automatically if you are current. Some servicers also review current value under their own standards, with extra conditions. That does not apply to FHA or VA insurance.
Two exceptions. Lender-paid mortgage insurance generally cannot be cancelled, so refinancing may be the only exit. And a new loan has new closing costs, which you weigh against what the insurance would cost over your time in the home.
So if you are close to 78%, waiting may beat refinancing. If you want cash anyway, the cancellation route does not help you.
Is It Worth It? A Break-Even Check
Use this four-step check with your Loan Estimate in hand:
1. Find the monthly insurance you would stop paying.
2. Add up the new loan’s closing costs.
3. Note any change in your monthly payment from the larger balance and new terms.
4. Divide closing costs by your net monthly savings. That is your break-even point.
If you plan to leave the home before that point, the refinance loses money. Cash-out also adds principal, so you pay interest on the extra borrowing. Taking cash to fund a project may still make sense. Taking it just to chase an insurance exit usually does not, unless you already have the equity.
If you need cash and have a first mortgage you like, a home equity loan or line may fit better. It leaves your first mortgage alone. It adds a second lien, and a second lien blocks PMI cancellation and changes how a later refinance is classified.
Common Mistakes
- Assuming any refinance erases insurance. The new loan’s LTV decides it.
- Pulling too much cash. It lifts your LTV past 80%.
- Ignoring seasoning. A recent refinance can delay cash-out. Fannie Mae’s prohibited-practices rule says a loan is not limited cash-out if you closed a cash-out within 30 days.
- Confusing a streamline with a cash-out. Neither FHA nor VA streamlines give you cash.
- Skipping the cancellation route. It may cost nothing.
- Forgetting occupancy. Second homes and 2–4 units cap lower. For a vacation property, Lendmire’s article Can a Vacation Home Skip Mortgage Insurance on a Cash-Out Refinance? covers it.
Key Terms Defined
LTV (loan-to-value): The loan balance divided by the home’s value. Lower means more equity.
PMI: Private mortgage insurance, which protects the lender on a conventional loan above 80% LTV. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
MIP: FHA’s mortgage insurance premium, charged upfront and annually. It is different from PMI.
Limited cash-out refinance: A refinance that pays off the old loan and costs, with only small cash back. Also called rate-and-term.
Seasoning: The minimum time you must have held the loan or the home before refinancing.
Funding fee: The one-time VA charge that replaces monthly mortgage insurance.
Frequently Asked Questions
Does a cash-out refinance automatically remove PMI?
No, but it often does in practice. The new loan is tested on its own LTV. Conventional cash-out caps at 80% on a one-unit primary home, so insurance generally does not apply. A loan above 80% still needs it.
Can I remove FHA mortgage insurance with a cash-out refinance?
Yes, if you refinance into a conventional loan at 80% LTV or less. A new FHA cash-out carries its own premiums. The FHA Streamline keeps the loan FHA, so it does not end the insurance either. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Does the cash I take out affect whether I can drop insurance?
Yes. Every dollar you take raises the new LTV. If the total passes 80%, a conventional cash-out is not available at that amount. A smaller cash-out may fit.
Is cancelling PMI cheaper than refinancing?
Often, if you are near 80% of the original value and current on payments. You skip new closing costs. Cancellation does not give you cash, and it does not apply to FHA or VA loans.
What about VA loans?
A VA cash-out has no monthly mortgage insurance, only the one-time funding fee. A VA cash-out can also take a non-VA loan into a VA loan, ending its insurance.
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. All figures above are subject to lender guidelines and full file review, and nothing here is a commitment to lend. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging FHA, VA, conventional and jumbo purchase and refinance loans through a wholesale lending network. Eligibility is determined by the lender on each file. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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References
1. Fannie Mae Selling Guide B7-1-01
2. FHFA
3. Fannie Mae Announcement SEL-2025-08
4. Fannie Mae Selling Guide B2-1.3-03
5. HUD
6. Fannie Mae consumer site, PMI
7. CFPB
8. Fannie Mae Selling Guide B2-1.3-04
This article is part of Lendmire’s cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How to Get the Most From a Cash-Out Refinance on Your Home · Cash-Out Refinance for Homeowners With a Plan for the Cash · Does a Cash-Out Refinance Raise Your Monthly Mortgage Payment?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.