The Quick Read: A conventional cash-out refinance pays off your existing first mortgage and puts a brand-new first mortgage in its place. Your old loan is not modified or added to. It ends, and the new loan carries a larger balance. Whatever the new balance exceeds your payoff and closing costs by comes to you as cash. On a one-unit primary home, the new loan generally tops out at 80% of the appraised value, subject to lender guidelines and full file review.
What “Replaces” Actually Means
The old loan does not survive. At closing, the new lender sends a payoff to your current servicer, the old lien is released, and a new lien is recorded. You do not owe both. You make one payment, on the new schedule, to the new servicer.
Fannie Mae’s Selling Guide describes it the same way: a new first mortgage that pays off the existing one. It can also be a new mortgage on a home with no lien at all.
Here is what changes and what doesn’t.
| Feature | Old Mortgage | New Mortgage |
|---|---|---|
| Lien | Released at payoff | New first lien recorded |
| Balance | Paid in full | Larger, includes cash to you |
| Term clock | Whatever remained | Starts over |
| Rate and terms | Gone | Set by the new loan |
| Escrow account | Refunded by old servicer | New one set up |
| Home and title | Yours | Still yours |
That “term clock” row matters. If you are ten years into a thirty-year loan, the new loan restarts the schedule unless you pick a shorter term. Same house, same ownership, different debt.
How the Loan Is Underwritten, Step by Step
Across the wholesale programs Lendmire places conventional files with, the sequence is consistent. Each step feeds the next.
1. Pre-screen. Before anything else, the file gets checked for the old loan’s age, how long you’ve been on title, how you occupy the home, and whether it’s been listed for sale.
2. Application and Loan Estimate. You apply, and the lender or broker issues the standardized Loan Estimate. It lays out the proposed terms and costs for comparison.
3. Underwriting. Credit score, income, debts and reserves get reviewed together. The wholesale conventional programs generally start at a 620 decision score. Most files run through an automated finding, with a total debt-to-income ceiling of 50%. Manually underwritten loans use tighter ratios, 36% or 45%, with the reserve and score factors in the agency Eligibility Matrix.
4. Appraisal. A new appraisal sets the value used in the leverage test. Freddie Mac’s cash-out product page requires a new appraisal and inspection report.
5. Pricing. Cash-out loans carry risk-based pricing adjustments tied to loan purpose, leverage and credit score. They are built into the loan’s pricing rather than appearing as a separate line, so compare the Loan Estimate and Closing Disclosure carefully.
6. Closing Disclosure and signing. You get the final cost disclosure and sign the new note and security instrument.
7. Rescission window, then funding. On a primary residence refinance, you generally have three business days to cancel. Funds are released after that window ends. Then the old loan is paid off and the remaining proceeds go to you.
Appraised value is the ceiling on everything. The math is straightforward: maximum leverage times appraised value, minus your payoff and costs, equals the most cash you can take out.
How Much Cash Can You Actually Reach?
On a one-unit principal residence, conventional cash-out tops out at 80% loan-to-value. On a two- to four-unit principal residence, a second home or an investment property, the cap drops to 75%. The Fannie Mae Eligibility Matrix publishes the agency limits. Credit-score minimums and reserves shift with leverage and debt ratios.
So no, you can’t borrow 100% of your equity. A cash-out leaves a cushion by design.
Consider a homeowner with a home worth 400 units of value and a payoff of 200 units. At 80%, the new loan can reach 320 units. Closing costs and the payoff come out first, and what’s left is yours. The percentages do the work, and the cash is always smaller than the headline equity figure.
There’s also a niche wholesale lane worth knowing about. On a thirty-year fixed, primary residence, conforming balance, one program reaches 89.99% leverage with no mortgage insurance at a 680 score and a 50% ratio, with its own six months of seasoning. It isn’t available everywhere. In Texas, a cash-out on the homestead is capped by the state constitution at the agency figure, and the wholesale lane is not written there. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Conforming loan limits also cap the total balance. Higher limits apply in designated high-cost areas. The Federal Housing Finance Agency sets them annually.
Seasoning and Title: The Two Clocks
Two rules trip up more borrowers than any other, and people mix them up constantly.
- Twelve months is the age of the mortgage being paid off, measured from the old note date to the new note date.
- Six months is how long at least one borrower must have been on title.
Same word, “seasoning,” two different clocks. Fannie Mae’s cash-out guidelines spell both out. A home that was listed for sale also has to be off the market by the time funds are disbursed. And on files with higher debt ratios, extra reserves may be required.
Where the General Rule Breaks
The standard rules have named exceptions. These are the ones that come up most.
Delayed financing. A buyer who paid cash can sometimes do a cash-out within six months of purchase, if the purchase was arm’s-length and other conditions are met. Fannie Mae’s delayed financing guidance confirms it still prices as a cash-out. It’s a way around the waiting period, not around the cost.
Inheritance and divorce. No title waiting period applies if you inherited the home or were legally awarded it in a divorce, separation or dissolution of a domestic partnership.
Co-owner buyout. Buying out a co-owner under a legal agreement is exempt from the twelve-month rule on the loan being paid off. Freddie Mac handles buyouts under a separate special-purpose cash-out section, and its ownership rules differ.
Freddie Mac occupancy. On a primary-residence cash-out, every borrower must occupy the home. A non-occupant co-signer doesn’t work there. Fannie Mae allows a non-occupant borrower’s income to be used, but at lower leverage limits.
Ineligible transactions. A loan with a temporary interest-rate buydown is ineligible. So is a refinance where there’s enough equity to pay off a PACE loan and the borrower chooses not to. Paying off an installment land contract doesn’t qualify either, and single-width manufactured homes are not eligible for cash-out under Fannie Mae’s product matrix.
Second homes and rentals. If the property isn’t your primary residence, occupancy sets the cap at 75% or lower. That’s all this article covers on that point.
What You Give Up When the Old Loan Is Replaced
This is the part competitors tend to skip. Replacing a loan means losing what was good about it.
- Your old rate. A cash-out reprices the whole balance, not just the new cash. A borrower with a strong existing rate gives that up on every dollar. Lendmire’s piece Conventional Cash-Out Refinance Terms for a Locked-In First Mortgage works through that tradeoff.
- Your remaining term. The clock resets unless you choose a shorter term.
- Your mortgage insurance status. Conventional mortgage insurance is required above 80% leverage. It can be cancelled on request at 80% of original value with good payment history, and servicers must end it automatically at 78%. A new loan above 80% starts that process over. At the 80% cap, this usually isn’t a concern, but the 89.99% wholesale lane exists partly to avoid it.
- Equity cushion. The 80% cap leaves equity in the home, but less than you had.
- Closing costs on the whole balance. You pay costs on the entire new loan, not just the cash portion.
Whether a smaller cash-out is worth doing when the first mortgage is cheap is a real question.
Cash-Out vs. Rate-and-Term vs. a Second Lien
The cleanest way to compare these is by what happens to your existing mortgage.
| Item | Cash-Out Refinance | Rate-and-Term | Home Equity Loan or HELOC |
|---|---|---|---|
| Existing first mortgage | Paid off, replaced | Paid off, replaced | Stays in place |
| Number of payments | One | One | Two |
| Cash to you | Yes, up to the cap | Only incidental | Yes |
| Max leverage (one-unit primary) | 80% | 95% | Varies by lender |
A rate-and-term refinance, sometimes called a limited cash-out refinance, pays off the first mortgage, closing costs and any purchase-money second lien. It allows only incidental cash back. It carries higher leverage allowances, 95% on a one-unit primary residence, because you’re not extracting equity.
A second lien leaves your first mortgage untouched. That’s the point when the first mortgage is worth keeping. If you’re weighing the options, our cash-out refinance programs page lays out the conventional lane.
Closing Day: What Happens to the Money
The sequence matters, because cash doesn’t arrive at the table.
1. You sign the note, the Closing Disclosure acknowledgment and the rescission notice.
2. The three-business-day clock runs. It starts only after you’ve signed, received the accurate Truth in Lending disclosure and received two copies of the rescission notice. Saturdays count.
3. After the window, the new lender sends the payoff to your old servicer.
4. The old lien is released and the new one recorded.
5. Remaining proceeds are disbursed to you.
6. Your old servicer refunds the old escrow balance.
The CFPB’s guidance on the right of rescission says cancellation must be in writing. A phone call isn’t enough. If you cancel, money you paid must be returned within 20 calendar days of the lender receiving your notice.
Net proceeds are always smaller than gross. Closing costs, the payoff, any other debts paid at closing, and prepaid items all come out of the new loan before you see a dollar.
Is Replacing Your Mortgage the Right Move?
Run through this before applying.
- Is your current first mortgage at least twelve months old?
- Have you been on title at least six months, or does an exception apply?
- Does the home’s value support the cash you need at 80% or below?
- Can you accept a reset term and a repriced balance?
- Would a second lien, which leaves your first mortgage alone, do the job instead?
- Do you have a plan for the cash? A cash-out is secured by your home, and falling behind puts the home at risk.
If the answer to the last two is shaky, slow down. 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
Cash-out refinance: A new first mortgage that pays off the old one and gives you the difference as cash.
Seasoning: The minimum age of the loan being paid off, or the time you’ve held title, before a new loan is allowed.
Loan-to-value (LTV): The loan balance divided by the home’s appraised value.
Right of rescission: Your right to cancel certain refinances in writing during a limited window set by federal rules. It generally applies to owner-occupied homes rather than investment properties, and timing varies by file and lender.
Delayed financing: An exception letting a cash buyer do a cash-out refinance within six months of purchase.
Rate-and-term refinance: A refinance that replaces the old loan with only incidental cash back.
Frequently Asked Questions
Do I still owe my old lender after a cash-out refinance?
No. The new loan pays off the old one in full at closing, and the old lien is released. You owe only the new lender afterward. Your old servicer refunds any leftover escrow balance.
Can I cancel after I sign?
Usually, yes, on a primary residence. You generally have three business days, counting Saturdays, and the clock starts only after you’ve signed, received the Truth in Lending disclosure and received two copies of the notice. Cancellation must be in writing.
Is the six-month rule the same as the twelve-month rule?
No. Six months is how long a borrower must have been on title. Twelve months is the age of the existing first mortgage, measured from old note date to new note date. Exceptions exist for inherited homes, legal awards and co-owner buyouts.
Does the lender keep my old interest rate on part of the loan?
No. The whole new balance is priced as one loan. That’s why a borrower with a strong existing rate should weigh a second lien or a smaller cash-out before replacing the loan.
How much of my equity can I take?
On a one-unit primary residence, the new loan generally reaches up to 80% of appraised value. Two- to four-unit homes, second homes and investment properties cap at 75%. Everything is subject to lender guidelines and full file review.
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.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage broker that arranges FHA, VA, conventional and jumbo home purchase and refinance financing in 16 states through wholesale lenders. Every option is subject to the lender’s guidelines and full underwriting. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
For the program’s current guidelines, see conventional loan programs.
Get Started
Ready to find the right loan for you?
In about 30 seconds you can review financing options available for your home or investment property. No commitment required.
Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. Fannie Mae Selling Guide B2-1.3-03 Cash-Out Refinance Transactions
2. Freddie Mac Cash-Out Refinance
3. Fannie Mae Eligibility Matrix
This article is part of Lendmire’s Conventional Loans series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: Should You Cash-Out Refinance Under Conforming With a Low First Mortgage? · Conventional Cash-Out Refinance Terms for a Locked-in First Mortgage · 6 Myths About the Cost of a Conventional Cash-Out Refinance
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
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.