The Quick Read: A cash-out refinance replaces your current first mortgage with a new, larger one. The new loan pays off the old mortgage, any second liens you choose to clear, and the closing costs. You get the leftover equity as cash, and you make one payment afterward. One payment does not mean a lower payment, though. The cash you take is added to your balance.
Key Terms Defined
Cash-out refinance: A new first mortgage that pays off your old one and gives you part of your equity as cash.
Rate-and-term refinance: A refinance that changes your rate or term and pays only the old loan, closing costs and, in some cases, a purchase-money second. Only incidental cash comes back.
LTV (loan-to-value): Your new loan balance divided by your home’s appraised value.
Seasoning: The waiting period a loan or a title must meet before you can refinance.
Second lien: A home equity loan or HELOC (home equity line of credit) that sits behind your first mortgage as a separate loan with a separate payment.
Lien release: Written proof from a lender that its claim on your home is gone.
Cash-out refinance estimate
The starting figures are an example value with a balance and a cash request in proportion. Replace them with yours.
Editable benchmark: 7.40% as of October 15, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not a cash-out refinance quote.
Illustrative starting assumptions: a $350,000 home value, a $193,000 current balance, the agency cap on a one-unit principal residence, a thirty-year term at the current Freddie Mac benchmark, and property taxes and insurance estimated at typical national rates. Every field is editable.
Illustrative estimate only — not a Loan Estimate, approval, quote, or commitment to lend. The rate field carries the weekly Freddie Mac thirty-year conventional benchmark, a market reference and not a cash-out refinance quote; a cash-out loan is priced by the lender at lock. The cash available is the loan the program cap allows less the balances paid off, before closing costs, which are not included. The HELOC line is the program’s combined loan-to-value ceiling applied to the same value and balance. Taxes and insurance are editable estimates. Licensed in sixteen states for consumer mortgages.
What Does “One Payment” Actually Mean?
You end up with one loan secured by your home. That is the whole idea. Your old first mortgage is gone, any junior loans you chose to clear are gone, and a single new mortgage stands in their place.
A second mortgage works differently. It leaves your first loan alone and adds a second balance and a second bill.
Here is the catch. One payment is a count, not a discount. The new loan is bigger, and its term clock starts over. The federal consumer-finance regulator warns that a cash-out refinance may take longer to pay off and the monthly payment may rise because the new loan is larger. Add up everything you pay today, then compare it to the single new payment. That total is the real test.
How the Loan Replaces What You Have
Picture a homeowner with a first mortgage and a HELOC. After the refinance, the closing agent sends one payoff to the first lender and one to the HELOC lender. Closing costs come out of the new loan if you choose to finance them. You receive whatever is left.
The leverage cap applies to the whole new loan, not to a slice of your equity. Across the wholesale programs I place files with, a conventional cash-out on a one-unit primary home reaches 80% LTV. Two- to four-unit primary homes, second homes and investment property reach 75%. Your cash equals the cap amount minus the payoff, minus any other liens you clear, minus financed costs. A conservative appraisal hurts most here, because it shrinks the cap before anything else is subtracted. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Can You Fold a HELOC or Second Mortgage In?
Yes, but the loan becomes a full cash-out refinance. That surprises people.
A rate-and-term refinance can pay off a second lien only if that second lien was used to buy the home. The Fannie Mae Selling Guide draws that line. A HELOC you opened later to remodel or pay bills does not qualify. Rolling it in means the 80% cap applies, even if no cash comes back to you.
Many homeowners overlook this. They assume “combining loans” is a plain rate-and-term refinance. If you only want to merge a non-purchase second lien, size the new loan to the payoff total and expect cash-out treatment.
One more point. Paying the HELOC to zero does not close it. Ask for the line to be frozen and closed, and get written confirmation. An open line with a zero balance can be drawn again, which brings a second payment back.
Step by Step: From Payoff Letters to One Lien
1. Pick your lane. Want a different rate or term with no real cash? That is a rate-and-term refinance. Want cash, or need to fold in a non-purchase second lien? That is a cash-out.
2. Check the clocks. The Fannie Mae Selling Guide requires the first mortgage you are paying off to be at least 12 months old, measured note date to note date. At least one borrower must have been on title for six months. Delayed financing, inheritance and legal-award exceptions exist.
3. Gather payoff information. Collect statements for every lien you plan to clear, plus your deed, ID and income documents. Bank statements may be needed if the lender must verify reserves.
4. Order the appraisal. The value sets your ceiling. On most files, the amount you can borrow is a percentage of that appraised value, so a lower appraisal typically means less room for cash-out or for rolling in a second lien.
5. Go through underwriting. The lender reviews credit, income, assets and debt ratios. Most wholesale conventional programs start at a 620 decision score, and the automated finding governs most files, with a total ratio ceiling of 50%. All of this is subject to lender guidelines and full file review.
6. Close and pay off. You receive a Loan Estimate early and a Closing Disclosure before signing. The closing agent pays the old liens directly from the new loan.
7. Verify afterward. Confirm the old first mortgage and any cleared second lien show as released. Watch for a new servicer and a new first due date, so you do not pay the old lender by mistake.
Will Your Payment Go Down?
Sometimes. Often not. Build a net budget view before you commit.
| Item | Before | After |
|---|---|---|
| First mortgage payment | Yes | Gone |
| HELOC or second payment | Yes | Gone if cleared |
| Credit card or loan payments you pay off | Yes | Gone |
| New single mortgage payment | None | Yes |
| Total monthly outlay | Add them up | Compare |
Count every payment the cash will eliminate, not just the mortgage ones. A homeowner who clears a HELOC and several credit cards may see the total fall even though the mortgage itself grows. Someone who takes cash for a remodel will see the payment rise. Neither outcome is wrong. You just need to know which one you are buying.
Also factor the term. A fresh long term lowers the monthly figure but stretches the payoff date, and the extra time means more interest overall. VA’s own guidance makes this point: cash added to the loan raises the balance and the interest paid over its life.
Cash-Out Refinance vs. HELOC vs. Home Equity Loan
| Factor | Cash-out refinance | Home equity loan | HELOC |
|---|---|---|---|
| Your first mortgage | Replaced | Stays | Stays |
| Number of payments | One | Two | Two |
| Old first-loan terms | Lost | Kept | Kept |
| How funds arrive | One lump sum | One lump sum | Draw as needed |
The big trade-off is your existing first mortgage. A cash-out replaces it with a new loan on today’s terms. A second mortgage leaves it untouched. If your current first mortgage is a good one, that matters a lot. Lendmire’s piece Should You Cash-Out Refinance a Listed Home or Keep a Low First Mortgage? walks through that decision.
What You Give Up
- Your old loan terms. The new loan replaces your existing rate and restarts the term.
- Equity. The CFPB says lenders typically want you to keep 10% to 20% of your home’s value as equity. Cash-out also uses up wealth you might want later.
- Safety on unsecured debt. Moving credit card debt into your mortgage turns unsecured debt into debt secured by your home. CFPB research notes that missing payments on a mortgage can put the home at risk of foreclosure, while defaulting on card debt is unlikely to cost you the home.
Credit cards are another trap. Once the balances hit zero, many borrowers drift back toward old spending. If that sounds like you, the consolidation may only double the debt.
Where the General Rule Breaks
Rate-and-term, not cash-out. If you want no real cash, a rate-and-term refinance reaches 95% LTV on a one-unit primary home across the programs I work with, and up to 97% where the existing loan is agency-owned and the first-time-buyer program allows. Mortgage insurance applies above 80% LTV. It can be cancelled when you request it at 80% of the original value, and servicers must end it automatically at 78%.
FHA. An FHA Streamline needs an existing FHA loan. It is not a cash-out product. HUD limits cash to $500. FHA cash-out loans have their own cap of 80% of adjusted value, set by a HUD mortgagee letter. Older pages still show 85%.
VA. A VA cash-out can refinance a non-VA loan into a VA loan. The VA IRRRL cannot. It is VA-to-VA only, and no other loan can be paid off with it. VA describes the cash-out option on its cash-out loan page. If you are a veteran weighing this, Lendmire’s article How to Use a VA Cash-Out for a Down Payment and Keep the Home covers that path.
Recent purchase. A cash buyer who documents the source of funds can refinance inside the six-month title wait under the delayed financing exception. The loan still prices and sizes as a cash-out.
Listed homes. A property listed for sale must be off the market by the disbursement date.
Second homes. Occupancy decides leverage: 75% on a cash-out for anything other than a one-unit primary residence.
Jumbo. A cash-out that pushes the balance above the conforming limit moves you out of agency eligibility. Jumbo lanes take over, with their own score and ratio rules.
Mortgage insurance. One wholesale conventional lane reaches 89.99% LTV with no mortgage insurance. It requires a 680 score and a 50% ratio on a thirty-year fixed primary residence with a conforming balance, plus its own six months of seasoning. It is not written on Texas homesteads, where state law caps cash-out at the agency figure. Every figure here varies by lender and program: guidelines, property type, leverage, and credit profile all apply.
State rules. State law can add its own rules, so expect some variation depending on where the home sits.
Costs and Break-Even
Closing costs are part of every refinance, and they can be financed into the new balance. Financing them raises your loan amount and your total interest. The Loan Estimate lists them in detail, so compare it line by line.
Break-even logic is simple. Take your total closing costs. Divide by the monthly amount you actually save. The answer is how many months you must keep the loan to come out ahead. If you may sell or refinance again before then, the math does not work.
Be careful with phrases like “no-closing-cost” refinance. The costs are not gone. They are built into the rate or the balance.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
When Not to Do This
- Your current first mortgage has a strong rate you would be giving up.
- You plan to sell within a short window.
- You would be moving unsecured debt onto your home with no plan to stop the old spending.
- You only need a small amount of cash that a second lien could supply while leaving the first loan intact.
- You have a government loan with a streamline option that fits your goal better.
Frequently Asked Questions
Does one payment mean a lower payment?
Not necessarily. You pay one bill instead of two or more, but the new loan is larger and starts a fresh term. Add up every payment you make now and compare it to the new total.
Can I roll my HELOC into a cash-out refinance?
Yes. The new first mortgage pays off the HELOC at closing, and you ask the HELOC lender to close the line and release its lien. Because the HELOC was not a purchase loan, the refinance is treated as a cash-out, even if no cash comes back.
How much of my equity can I borrow?
Not all of it. The leverage cap applies to the whole new loan. On a conventional one-unit primary home it is 80%. Equity left in the home is part of the deal, and the appraisal decides the final number.
How soon after buying can I do a cash-out refinance?
Standard rules call for six months on title and a first mortgage that is at least 12 months old. A delayed financing exception helps cash buyers who document where their money came from. Program details are subject to lender guidelines.
Will my credit score change?
Yes, it can. A CFPB report found scores rose sharply for cash-out borrowers after the refinance, then slowly slipped but stayed above where they started. A common reason borrowers gave was paying off other debts.
Next Step
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. Start with Lendmire’s cash-out refinance programs, a mortgage broker’s view of what each lane allows for your own residence. Asking for a review carries no obligation. Nothing here is a commitment to lend, and every figure is subject to lender guidelines and full file review.
For current guidelines and terms, see Lendmire’s refinance programs page.
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.
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References
1. CFPB
2. Fannie Mae Selling Guide B2-1.3-02, Limited Cash-Out Refinance Transactions
3. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
4. VA News: refinancing options
5. HUD
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 a Cash-Out Refinance Replaces Your Mortgage With Cash · Can You Do a Cash-Out Refinance After Making Only One Payment? · Can You Drop Mortgage Insurance With a Cash-Out Refinance?
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.