The Quick Read: A new first mortgage can pay off a HELOC, and most of the time the loan is underwritten as a cash-out refinance. The exception is a HELOC that funded the home purchase. Conventional cash-out on a one-unit primary residence tops out at 80% LTV, the existing first mortgage must be seasoned, and the HELOC has to be paid and closed, or subordinated, at closing. Everything is subject to lender guidelines and full file review.
Key Takeaways
- Classification drives the file. A HELOC drawn for anything other than the purchase makes the refinance a cash-out, even if no cash comes back to you.
- Conventional cash-out on a one-unit primary residence is capped at 80% LTV, and the HELOC payoff counts inside that cap.
- The existing first mortgage must be at least 12 months old. The HELOC can be any age.
- FHA Streamline and VA streamline refinance loans do not retire a HELOC.
- Paying the line to zero is not enough. The line has to be closed, or the lender has to subordinate it.
What Counts as a Cash-Out When a HELOC Is Involved?
Most HELOC payoffs are cash-out refinances, because most HELOCs were not used to buy the home. The test is one question: where did the HELOC money go?
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: 7.24% as of October 29, 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.
Under the Fannie Mae Selling Guide, only a second lien used to purchase the property can be paid off inside a limited cash-out (rate-and-term) refinance. The lender has to document that the proceeds went to the purchase price. If the line paid for a kitchen, a car, or credit cards, the payoff is a cash-out transaction.
The surprise for many borrowers: taking no cash at the table doesn’t change that. A non-purchase second lien paid off by the new loan is cash-out, full stop. That means cash-out leverage limits and cash-out pricing apply.
Two cases sit outside the pattern. If the HELOC sits in first-lien position because there is no other mortgage, a limited cash-out refinance can pay it off. And if you leave the HELOC in place and take cash, that is also a cash-out.
The Requirements, Step by Step
Across the wholesale programs placed through Lendmire’s cash-out refinance programs page, a HELOC payoff file gets underwritten in a fixed order. Here is the sequence, as it works on the desk.
1. Classify the HELOC. The loan officer asks what the draws paid for. A purchase-money line can ride in a limited cash-out. Anything else is cash-out. Expect to document use of proceeds if you claim the limited treatment.
2. Check the seasoning clocks. The first mortgage being paid off must be at least 12 months old, measured note date to note date. A borrower also has to have been on title for 6 months. Exceptions exist for delayed financing, inheritance and legal awards. The Fannie Mae cash-out guidance is the reference here. The HELOC itself can be of any age, which trips up borrowers who assume a recent draw blocks the loan.
3. Run the combined leverage. The new first mortgage, plus the HELOC payoff, plus financed costs, plus any lien that stays, all count against the cap. The Fannie Mae Eligibility Matrix puts conventional cash-out on a one-unit principal residence at 80%. Across the wholesale programs, two- to four-unit principal residences, second homes and investment property are written at 75%. Occupancy sets the leverage. It does not decide whether a cash-out is allowed.
4. Clear credit and ratios. The wholesale conventional programs start at a 620 decision score, with the automated finding governing most files and a total ratio ceiling of 50%. Manually underwritten loans run tighter, at 36% or 45%, with reserve and score factors. Waiting periods after credit events follow agency rules: four years from a chapter 7 discharge, seven from a foreclosure, four from a short sale or deed-in-lieu, shorter with documented extenuating circumstances.
5. Order the payoff and appraisal. The appraisal sets the value. The title company requests a payoff statement from the HELOC lender. Per-diem interest is built in, so the payoff figure on the Closing Disclosure usually runs a little above the balance you see online.
6. Close the line. At closing the HELOC is paid and closed. Many borrowers ask for a freeze-and-close instruction and a lien release. A line sitting at zero is still a lien. If it stays open, the new first mortgage can’t take first position.
7. Reconcile at settlement. Check the Closing Disclosure for the HELOC payoff line, the first mortgage payoff, costs and any cash back. Then confirm the lien release is recorded afterward.
What Does 80% Combined Leverage Look Like in Practice?
Think in percentages. Say your home is worth 100 units, your first mortgage balance is 45% of value and your HELOC is 25%. The payoff total is 70% of value, before financed costs. That leaves roughly 10 percentage points of room under an 80% cap for closing costs and any cash back. Costs eat into that room first.
Now change the first mortgage to 58% and keep the HELOC at 25%. The payoff alone is 83%. That is over the cap, and the file does not work as a conventional cash-out without more equity.
Short on equity? The usual options:
- Pay the HELOC down with savings before applying.
- Keep the HELOC, if its lender will subordinate, and refinance only the first.
- Wait for value or principal paydown to improve the ratio.
- Look at a different program lane, if you qualify.
The Consumer Financial Protection Bureau notes that lenders typically want you to keep 10% to 20% of home value as equity on a cash-out refinance, home equity loan or HELOC. That matches what the 80% cap does.
A Wholesale Exception Worth Knowing
There is one lane that goes past 80%. A wholesale cash-out program reaches 89.99% LTV with no mortgage insurance at a 680 score and a 50% ratio on a thirty-year fixed, primary residence, conforming balance, with its own six months of seasoning. It is the one exception to the rule that mortgage insurance is required above 80% LTV. Eligibility is subject to lender guidelines, and the lane is not written in Texas.
Texas has its own wrinkle. A cash-out on a homestead (a Section 50(a)(6) loan) is capped at 80% of the home’s value by the state constitution.
Payoff or Subordination: How to Choose
You have two paths with the HELOC. Pay it off and close it, or leave it open and ask the HELOC lender to subordinate it behind the new first mortgage.
| Path | What happens | Where it breaks |
|---|---|---|
| Pay off and close | New loan retires the line | Counts fully against leverage cap |
| Keep and subordinate | HELOC lender signs an agreement | Lender can decline; cash taken makes it cash-out |
| Pay down first, then refinance | You cut the balance with savings | Uses liquid cash you may want kept |
If you keep the HELOC, the new first mortgage has to take first position, so the HELOC lender must sign. Subordination can carry a fee and adds steps. If the lender refuses, you are back to paying the line off.
Payoff makes sense when you want one payment, want out of a variable-rate balance and the combined number fits under the cap. Keeping the line makes sense when the HELOC is small, you want the revolving access and the lender will cooperate.
Where the General Rule Breaks
These are the edge cases that change the answer.
FHA and VA streamlines. The FHA Streamline refinances only the existing FHA first mortgage, and the FDIC’s summary of the program says no cash may come out of it. The VA IRRRL is a loan for an existing VA loan only, per VA, and the borrower receives no cash. Neither retires a HELOC. An FHA or VA borrower who wants the line gone looks at a full cash-out refinance, pays it down, or keeps it with a subordination.
A HELOC in first position. A limited cash-out refinance can pay it off. Freddie Mac also exempts a first-lien HELOC from its 12-month seasoning clock, as the agency’s cash-out product page describes the seasoning rule. Treat the exemption as a question for your loan officer, since details vary by lender.
Delayed financing. If you bought the home with a HELOC drawn on another property, the settlement statement has to show that all cash-out proceeds go to pay off that line.
Disaster repair. There is a disaster-related limited cash-out option for lines drawn after a declared disaster. It is narrow, and a lender confirms whether a file qualifies.
Recent draws. The agency text does not give a simple “12-month draw” rule, so don’t assume one. Expect the underwriter to ask what the recent draws paid for.
Occupancy. Multi-unit, second-home and investment-property cash-outs sit at 75%. One sentence covers it: occupancy sets the leverage, and the same seasoning rules apply.
What Changes in Your Monthly Budget
Two payments become one, and a variable payment tied to your balance becomes a first-mortgage payment you can plan around. The CFPB describes a HELOC as a revolving second mortgage whose rate is usually adjustable.
The tradeoffs are real:
- The refinance resets the rate and term on the entire first mortgage. If your current first mortgage is a good one, you give it up to retire a smaller line.
- Closing costs apply to the whole new balance, and cash-out pricing generally runs higher than limited cash-out.
- You lose the revolving access, which matters if you used the line as a reserve.
- Your home secures a larger first lien.
The CFPB suggests comparing the HELOC’s rate against the rate on your current mortgage. A cash-out refinance can cost more or less than the HELOC depending on terms. That comparison is the heart of the decision. Have your loan officer lay out the blended picture on a Loan Estimate before you commit.
Key Terms Defined
Cash-out refinance: A new first mortgage that pays off the old loan and other liens, with leverage and pricing set for cash-out.
Limited cash-out refinance: A rate-and-term refinance that pays off the first mortgage, closing costs and a purchase-money second, with only incidental cash back.
Combined LTV: All loans against the home, added together, divided by its appraised value.
Subordination: A written agreement where a junior lienholder, like a HELOC lender, accepts a position behind the new first mortgage.
Seasoning: The minimum time a loan or ownership must exist before a refinance is allowed.
Note date: The date the borrower signs the loan’s promissory note, used to measure the 12-month clock.
Common Mistakes on HELOC Payoff Files
- Assuming no cash back means rate-and-term. It only does if the HELOC funded the purchase.
- Ignoring the seasoning date on the first mortgage. The clock is on the first mortgage, not the line.
- Leaving the line open at zero. It stays a lien. Close it or get it subordinated.
- Forgetting financed costs. They sit inside the leverage cap.
- Expecting a streamline to do the job. FHA and VA streamlines are first-lien only, with no cash out.
- Not reading the payoff letter. Per-diem interest and any early-closure terms live there.
Frequently Asked Questions
Do I have to pay off my HELOC when I refinance my first mortgage?
Either pay it off or have the HELOC lender subordinate it. The new first mortgage must hold first position, so an open line can only stay if its lender signs a subordination agreement. If it declines, the line has to be paid and closed at closing.
Will paying off the HELOC close the line?
It should, but ask for it in writing. A line paid to zero can stay open, and an open line is still a lien. Request a freeze-and-close instruction and confirm the lien release is recorded after closing.
Is paying off a HELOC ever a rate-and-term refinance?
Yes, when the HELOC funded the home purchase and the lender documents that the proceeds went to the price. Then it can fit a limited cash-out refinance. Any other use of the line makes the payoff a cash-out, even if you take no cash.
How old does my first mortgage have to be?
At least 12 months, measured note date to note date, on conventional cash-out. You also need to have been on title for 6 months. The HELOC can be any age.
Can an FHA Streamline or VA IRRRL pay off my HELOC?
No. Both refinance only an existing government first mortgage and neither allows cash out. To remove the line, an FHA or VA borrower can pay it down, keep it subordinated, or look at a full cash-out refinance.
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.
For current guidelines and terms, see Lendmire’s refinance programs page.
About Lendmire
As a mortgage broker (NMLS# 2371349), Lendmire helps homeowners and home buyers in 16 states with FHA, VA, conventional and jumbo purchase and refinance loans arranged through wholesale lenders. Lendmire is never the lender; program terms are set by the lender and the agency guidelines. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
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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: Limited Cash-Out Refinance Transactions
2. Fannie Mae Selling Guide: Cash-Out Refinance Transactions
3. Fannie Mae Eligibility Matrix
4. CFPB: Using Your Home Equity Guide
5. FDIC’s summary of the program
6. VA
7. CFPB
This article is part of Lendmire’s cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Cash-Out Refinance Requirements to Pay Off Debt or Fund Renovations · Cash-Out Refinance Document and Appraisal Requirements · Cash-Out Refinance Requirements After a Renovation Is Finished
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
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.