The Quick Read: A cash-out refinance ends your current private mortgage insurance because the old loan is paid off, and the new loan avoids mortgage insurance only if it stays at or below 80% of the appraised value (with one wholesale exception that reaches 89.99%). Underwriting checks the property’s value, the age of your current loan, how long you have been on title, your credit score, and your debt-to-income ratio. Because a low appraisal can undo the plan, the first question is whether you need the cash at all or just want the insurance gone.
What Is Actually Happening in This Transaction?
A cash-out refinance replaces your first mortgage with a larger one and hands you the difference. Freddie Mac describes it as a loan with no specific restrictions on how the proceeds are used. Because the old loan is paid off at closing, the insurance policy attached to it stops.
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: 7.18% as of November 5, 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.
The new loan is a fresh underwriting decision. Mortgage insurance on conventional loans generally applies above 80% loan-to-value, so the leverage cap on the new loan decides whether insurance returns. The one exception is a wholesale no-mortgage-insurance lane that reaches 89.99%, covered below.
Lendmire is a mortgage broker, not a lender. Across the wholesale programs it places conventional files with, the sequence below is how a cash-out file gets reviewed. Every figure is subject to lender guidelines and full file review, and nothing here is a commitment to lend.
Key Terms Defined
Private mortgage insurance (PMI): Insurance on a conventional loan above 80% leverage that protects the lender, not you. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Loan-to-value (LTV): The loan balance divided by the home’s appraised value.
Combined LTV (CLTV): The same test counting every lien on the home, including a second mortgage or HELOC.
Seasoning: The minimum age of your current loan and the minimum time you have held title.
Limited cash-out refinance: A refinance that pays off the first mortgage and costs with only small cash back.
Do You Need a Refinance at All?
Not always. Check the free routes first, because they cost far less than a new loan.
Under the Homeowners Protection Act, you can ask your servicer to cancel PMI when your balance is scheduled to reach 80% of the home’s original value. The servicer must end it automatically at 78%. Per the CFPB, a cancellation request also requires no junior liens and evidence that the value has not dropped below the original.
If Fannie Mae owns the loan, a current-value route may exist. Under Fannie Mae’s Servicing Guide, a one-unit home or second home needs an LTV of 75% or less when the loan is two to five years old, and 80% or less after five years. Where improvements raised the value, the two-year minimum does not apply and the test is 80% or less. That route needs a valuation, not a new loan. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
A cash-out refinance makes sense when you want the cash too, or when the free routes are years away.
How the Underwriting Runs, Step by Step
1. Classify the loan
The lender decides whether the new loan is cash-out or limited cash-out. Paying off a second lien that was not used to buy or build the home moves the file into cash-out. Owning the home free and clear does the same: Freddie Mac still treats a new mortgage on a lien-free home as cash-out, so owning outright does not buy you a cheaper category.
2. Check the clocks
Two clocks run at once. The first mortgage being paid off must be at least 12 months old, measured from note date to note date, per the Fannie Mae Selling Guide. You must also have been on title for 6 months, with exceptions for delayed financing, inheritance and legal awards. A loan under two years old leaves few removal options, so the clocks matter early.
3. Size the loan
Leverage depends on occupancy. The cap is 80% on a one-unit principal residence and 75% on two- to four-unit principal residences, second homes and investment property. The Fannie Mae Eligibility Matrix applies the cap to LTV, CLTV and HCLTV, so a HELOC counts toward the limit.
The maximum loan is the appraised value times the cap, minus your payoff, financed closing costs and any other liens. Every financed cost and every dollar of cash taken eats into the room under the cap.
4. Value the home
The appraisal is the denominator in every test. A low number shrinks the cash available. It can also leave the new loan above 80%, which brings mortgage insurance back or ends the deal. Do not assume a cash-out refinance can skip an appraisal.
5. Review the borrower
Wholesale conventional programs start at a 620 decision score. The automated finding governs most files, with a total ratio ceiling of 50%. Manually underwritten loans use 36% or 45% ratios, with reserve and score factors from the Eligibility Matrix. Lenders also look at payment history. Fannie Mae’s consumer guidance notes a borrower may need no payment 30 or more days late in the past year and none 60 or more days late in the past two.
6. Price and close
Cash-out loans carry loan-level price adjustments, and the cost shows up in the rate or in points. That is a pricing mechanic, separate from mortgage insurance. Your Loan Estimate and Closing Disclosure itemize the costs. The old loan is paid off, and its PMI stops.
The Wholesale Lane That Skips Mortgage Insurance Above 80%
The 80% line has one exception. A wholesale lane 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. It carries its own six months of seasoning. In Texas, a cash-out on a homestead is capped at 80% of the home’s value by the state constitution, and this lane is not written there. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Loan sheets list typical annual mortgage insurance premiums of 0.58% to 1.86% of the balance on Lendmire’s conventional program sheet. That range is a program-sheet figure, not a quote. A no-MI lane replaces that line item, though other pricing still applies, so compare the full cost.
Lendmire’s cash-out refinance programs page outlines the lanes, and a broker shopping several wholesale lenders can match a scenario to the one that fits. The program that fits depends on your property type, credit profile, leverage need and documentation.
Where the General Rule Breaks
- Delayed financing. A buyer who paid cash can do a cash-out refinance within six months of purchase if the Guide’s conditions are met and the source of funds is documented. Cash-out pricing still applies.
- Limited cash-out is not a shortcut. It works only if the new loan meets the limited rules. Cash back is capped: Fannie Mae allows the lesser of 2% of the new loan amount or $2,000, and Freddie Mac the greater of 1% or $2,000.
- Construction and renovation loans. Freddie Mac’s 12-month first-lien seasoning rule does not apply to construction-conversion or renovation loans, or certain manufactured-home loans.
- Lender-paid mortgage insurance. You cannot cancel it, so a refinance is the way out.
- FHA loans. FHA insurance is not conventional PMI, and the Homeowners Protection Act does not cover it. Getting out often means refinancing into a conventional loan.
- Co-owner buyouts. These run through special-purpose or limited cash-out rules rather than ordinary cash-out.
- PACE liens. Choosing not to pay off a PACE loan can make a borrower ineligible for cash-out.
What the Decision Looks Like
| Path | Needs new loan? | Best when |
|---|---|---|
| Automatic termination | No | You are near 78% of original value |
| Request at 80% | No | Payment history is clean, no junior liens |
| Current-value removal | No | Value rose or improvements were made |
| Rate-and-term refinance | Yes | You want PMI gone with minimal cash back |
| Cash-out refinance | Yes | You need cash and have room under the cap |
The break-even question is simple. Compare the monthly insurance you would stop paying against the full cost of a new loan: closing costs, a new appraisal, cash-out pricing and a restarted amortization schedule. If you only want PMI gone and need no cash, the free routes or a limited cash-out often win. If you need cash for a project anyway, ending PMI becomes a bonus.
A practical scenario: a homeowner with a loan 18 months old, 85% leverage, and a plan to renovate. The current-value route needs the improvements exception, and the loan is under two years old. The 12-month seasoning requirement for a cash-out refinance is already met, but a low appraisal could still push the new loan above 80%. Ask your broker to run both outcomes before you order anything. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
What Can Go Wrong
- A low appraisal. Less cash, or insurance back, or no deal.
- Financed closing costs. They add to the balance and raise LTV.
- Late payments. Recent lates can block both removal routes and approval.
- A second lien. It counts toward the cap and can disqualify a cancellation request.
Before applying, gather your current payoff, your loan’s note date, your title date, any HELOC balance, and a realistic view of your home’s value.
Frequently Asked Questions
Does PMI on my old loan block a cash-out refinance?
No. The old policy ends when the old loan is paid off. What matters is the leverage on the new loan, since that decides whether insurance returns.
Can a cash-out refinance take me above 80% without mortgage insurance?
Only through the wholesale lane that reaches 89.99% with no mortgage insurance, at a 680 score and a 50% ratio on a thirty-year fixed primary residence with a conforming balance. Agency loans otherwise require insurance above 80%. Texas homesteads are capped at 80%.
Does a HELOC count toward the 80% cap?
Yes. The cap applies to CLTV and HCLTV, which include subordinate liens, so a HELOC reduces how much cash the new loan can deliver.
Is limited cash-out cheaper than cash-out for dropping PMI?
It can be, but only when the new loan meets the limited rules. Paying off a second lien that was not used to buy or build the home pushes the loan into cash-out, with cash-out pricing.
What if my loan is under two years old?
Options are narrow. The current-value route needs the improvements exception, and a refinance requires the loan being paid off to be 12 months old.
Next Step
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 brokerage serving homeowners and home buyers in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending channels; Lendmire brokers the financing and the lender underwrites each application. 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. Freddie Mac Guide Section 4301.5
2. CFPB
3. Fannie Mae Servicing Guide B-8.1-04, Termination of Conventional Mortgage Insurance
4. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
5. Fannie Mae Eligibility Matrix
6. Fannie Mae consumer page — Private Mortgage Insurance
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 Options When You Have Private Mortgage Insurance on Your Current Loan · How Lenders Size a Conventional Cash-Out Refinance on a Primary Home · Best Cash-Out Refinance Program to Remove Private Mortgage Insurance
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
Legal disclosures. Lendmire (NMLS# 2371349) is a state-licensed mortgage brokerage that arranges financing through wholesale lender relationships. Lendmire is not a direct lender, depository institution, or registered financial advisor. The discussion above is general informational content about real estate financing — it is not financial, legal, or tax advice, and readers should consult licensed professionals for guidance on their individual circumstances. Loan inquiries are subject to lender underwriting; this article does not represent a commitment to lend. Loan terms, rates, and qualification standards vary by borrower, property, and state, and are subject to change at any time. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.