The Quick Read: Financed vs. monthly mortgage insurance is not a choice on every cash-out refinance, because the answer depends on the program. A standard conventional cash-out stops at 80% loan-to-value on a one-unit primary residence, which is where mortgage insurance usually ends, so many carry none. FHA charges both an upfront premium (which can be financed) and a monthly one. VA charges no monthly insurance, only a one-time funding fee that can be rolled into the loan.
The honest answer is short. If you are leaning conventional, you will most likely never face this choice, because Fannie Mae does not allow borrower-purchased mortgage insurance to be financed on a cash-out loan. If you are on FHA, you get both options in one loan. If you are a veteran, the question becomes whether to finance the funding fee. Each path is covered below, along with the point where the answer flips.
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.
Side-by-Side
| Factor | Conventional cash-out | FHA cash-out | VA cash-out |
|---|---|---|---|
| Leverage | 80% LTV on a one-unit primary residence; 75% on two- to four-unit homes, second homes and investment property | 80% of adjusted value | Capped by reasonable value |
| Credit floor | 620 decision score on wholesale programs | Set by lender overlays | Set by lender overlays |
| Mortgage insurance | None at or below 80% LTV | Upfront plus monthly, always | None monthly |
| Can the cost be financed? | Not on cash-out | Upfront premium, yes | Funding fee, yes |
| Occupancy | Primary, second home or investment | Primary residence | Primary residence |
| Documentation | Full file review, automated finding | Full file review | Full file review plus VA appraisal |
Every figure is subject to lender guidelines and full file review, and none of it is a commitment to lend. Occupancy sets the conventional ceiling, as the leverage row shows.
What “Financed” and “Monthly” Actually Mean
Monthly mortgage insurance is a charge added to your housing payment each month. Lenders count it in your debt-to-income ratio, so it affects how much you can qualify for.
Financed mortgage insurance means the cost is added to your loan balance instead of paid in cash. That lowers cash due at closing but raises the balance, and you pay interest on it for as long as the loan lasts.
Two related terms come up often. Lender-paid mortgage insurance is built into the loan’s pricing, so there is no separate line item, but the cost is still there. Single premium is a one-time upfront payment covering the insurance, in place of monthly charges.
For context, Fannie Mae’s Selling Guide allows financed borrower-purchased insurance on purchases and limited cash-out refinances, and makes cash-out loans that include it ineligible for delivery.
To see the programs a broker can arrange across the wholesale lenders Lendmire works with, visit the cash-out refinance programs page.
When Financed Mortgage Insurance Is the Better Fit
Financing the cost fits two borrowers: the FHA borrower who is short on closing cash, and the veteran weighing the VA funding fee.
On an FHA cash-out, the upfront premium is 1.75% of the base loan amount under HUD Mortgagee Letter 2023-05. You may pay it in cash or finance it. Financing keeps cash in your pocket on closing day. The tradeoff is a larger balance and more interest over time, plus less net cash out of the refinance. HUD’s cash-out ceiling is 80% of adjusted value for case numbers assigned since September 1, 2019 (it was 85% before that).
On a VA cash-out, there is no monthly insurance. The funding fee can be financed, as long as the new balance does not exceed 100% of reasonable value. Veterans receiving service-connected disability compensation are generally exempt from the fee. Confirm the current fee schedule on the VA funding fee page before deciding, since the figures should be read from VA directly.
Financing makes sense when:
- Cash at closing is tight and you need the proceeds for a specific purpose.
- You expect to keep the loan a long time and the fee is small next to the loan.
- Your monthly debt-to-income ratio has little room, and a financed fee avoids a larger monthly charge.
The flip point is a short horizon. If you plan to sell or refinance again in a few years, you will have paid interest on a premium you may not fully recover. An FHA-to-FHA refinance can sometimes credit back part of the original upfront premium, but that depends on timing and handbook rules, so ask your loan officer rather than assuming it.
When Monthly Mortgage Insurance Is the Better Fit
Paying monthly fits the borrower who wants the smallest balance and the most flexibility to exit the loan.
Across the wholesale programs Lendmire places files with, conventional mortgage insurance above 80% LTV is monthly and borrower-paid. The conventional program sheet lists typical annual premiums of 0.58% to 1.86% of the balance. That is the program sheet’s range, not a quote, and your own figure depends on credit, leverage and the loan. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Here is the part that makes conventional different. Under the Homeowners Protection Act, borrower-paid insurance can be cancelled on request at 80% of the original value (with good payment history, no subordinate liens and no decline in value), and the servicer must end it automatically at 78%. The CFPB also notes that this insurance protects the lender, not you. A monthly charge that can end is easier to live with than a balance increase that stays.
FHA works differently. Its monthly premium cannot be cancelled on equity alone, and removing it generally means refinancing out of FHA. On a longer term at 90% LTV or below, HUD’s structure runs the premium for eleven years, and above that, for the life of the loan. A cash-out capped at 80% generally falls in the shorter tier on longer terms, but check the schedule for your term.
Monthly wins when:
- You expect to sell, refinance or pay down the loan within a few years.
- You want the lowest balance and the lowest total interest.
- You are on a conventional loan where the charge can cancel at 80% or end at 78%.
The flip point is your monthly budget. A monthly charge raises your payment and counts in your debt-to-income ratio, so a tight file may do better with the cost financed.
When Neither Applies: Conventional at or Below 80%
For many homeowners, the best answer is that nothing needs to be financed. On a one-unit primary residence, a conventional cash-out stops at 80% LTV, and mortgage insurance is generally required only above that. Two- to four-unit homes, second homes and investment property are capped at 75%.
There is one exception worth knowing. Some wholesale lanes reach 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 their own six months of seasoning. On the standard agency path, mortgage insurance is required above 80% LTV, and this wholesale no-MI cash-out lane is the exception. The lane is not written in Texas, where a cash-out on a homestead is capped at 80% of value by the state constitution. Every figure here varies by lender and program, and guidelines, property type, leverage and credit profile all apply.
Seasoning rules apply either way. The loan you are paying off must be at least 12 months old, measured note date to note date, and you must have been on title for six months, per Fannie Mae. Delayed financing, inheritance and legal-award exceptions exist.
How the Choice Changes Your Loan
Run the decision through four lenses, using percentages and plain terms instead of dollar figures.
- Balance and LTV. A financed premium or fee raises your balance. On FHA and VA the LTV cap limits how much can ride into the loan, which can reduce your net cash out.
- Payment and qualifying. Monthly insurance enters your debt-to-income ratio directly. A financed amount raises the payment through the larger balance instead.
- Time horizon. Think in three stages. In the first few years, monthly charges often cost less in total because you have not paid much interest on a financed amount. Over a medium stretch the two can converge. Over a long hold, a financed amount keeps accruing interest, while a conventional monthly charge may have already cancelled.
- Exit plans. Selling or refinancing soon favors the option with the smaller balance.
Picture a homeowner with a primary residence who wants cash for a renovation and has a tight monthly budget. On FHA, financing the upfront premium keeps closing cash low, while the monthly premium is unavoidable. On conventional at 80%, the question disappears.
Common Mistakes
- Assuming you can roll mortgage insurance into any cash-out. Conventional cash-out loans cannot include financed borrower-purchased insurance.
- Assuming cash-out always means mortgage insurance. At 80% or below on a conventional primary residence, generally none applies.
- Expecting FHA premiums to drop at 80% equity. Cancellation rights under the Homeowners Protection Act cover private insurance, not FHA premiums.
- Treating a financed amount as free. It raises the balance and the interest you pay.
- Believing lender-paid insurance costs nothing. The cost is built into the loan’s pricing.
- Forgetting the VA fee. No monthly insurance does not mean no cost.
The Balanced Verdict
Financing wins when closing cash is the constraint and you plan to hold the loan for years. Paying monthly wins when you expect to move or refinance, or when your conventional insurance can cancel. On a conventional cash-out at 80% LTV, the question often goes away entirely, which is usually the cleanest outcome.
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.
Key Terms Defined
Loan-to-value (LTV): the loan balance divided by the home’s appraised value.
Upfront premium: a one-time FHA charge that can be paid in cash or financed.
Funding fee: the one-time VA charge that stands in for monthly insurance.
Seasoning: the minimum time you must hold a loan or title before refinancing.
Limited cash-out: a refinance that pays off the loan and costs with only small cash back.
Frequently Asked Questions
Can I finance mortgage insurance on a conventional cash-out refinance?
No. Fannie Mae makes cash-out loans ineligible if they include financed borrower-purchased insurance. The option exists on purchases and limited cash-out refinances. Freddie Mac’s treatment should be confirmed with your loan officer, since it is described here only in general terms.
Does a cash-out refinance always require mortgage insurance?
No. A conventional cash-out on a one-unit primary residence is capped at 80% LTV, where insurance is generally not required. Some wholesale lanes reach 89.99% with none, subject to score, ratio and seasoning conditions.
Can FHA mortgage insurance be cancelled later?
Not on equity alone. It generally ends only by refinancing out of FHA, though the duration depends on term and LTV. Conventional insurance, by contrast, can be cancelled at 80% and must end at 78%.
Is the VA funding fee the same as mortgage insurance?
No. It is a one-time charge, not a monthly premium, and it can be financed within the 100% of reasonable value limit. Some veterans are exempt, including those receiving service-connected disability compensation.
How long must I wait before a conventional cash-out?
The loan being paid off must be at least 12 months old, and you must be on title for six months, with exceptions for delayed financing, inheritance and legal awards. These are agency rules, subject to lender guidelines.
For your own numbers, request a scenario review with Lendmire.
For current guidelines and terms, see Lendmire’s refinance programs page.
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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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: Financed Borrower-Purchased Mortgage Insurance
2. HUD Mortgagee Letter 2023-05
4. CFPB
5. Fannie Mae Announcement SEL-2023-01
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 With a Second Mortgage Already on the Property · How Lenders Underwrite a Cash-Out Refinance When It Resets the Mortgage to a New 30 Years · How Much Documentation a Cash-Out Refinance Mortgage Requires
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
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.