The Quick Read: It depends on the loan you already have and how much cash you need. A cash-out refinance replaces your first mortgage with a new, larger one. A second mortgage leaves the first loan alone and adds a separate loan behind it. Keeping the new first loan at or under 80% of value is the usual way to avoid mortgage insurance, and a wholesale no-MI cash-out lane is the one exception that goes higher.
The honest answer on who each option fits: a cash-out refinance tends to suit homeowners whose current first mortgage has no special advantage worth protecting and who want one payment. A second mortgage tends to suit homeowners who like their first loan, need a smaller amount, or want to avoid resetting the whole loan. Neither is cheaper in general. It turns on your existing loan terms, your equity, and the pricing quoted on the day you apply.
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.
Lendmire’s cash-out refinance programs page covers the conventional side of this choice. Lendmire is a mortgage broker, and every figure below is subject to lender guidelines and full file review. Nothing here is a commitment to lend.
Side-by-Side
| Factor | Conventional Cash-Out Refinance | Second Mortgage (Home Equity Loan or HELOC) |
|---|---|---|
| Structure | New first mortgage replaces the old one | New loan sits behind your existing first |
| Leverage | 80% LTV on a one-unit primary home; 75% on two- to four-unit primary homes, second homes and investment property | Combined limit set by the second-lien lender |
| Credit floor | Wholesale programs start at a 620 score | Set by the second-lien lender |
| Mortgage insurance | None at or under 80% LTV; no-MI lane to 89.99% | Not charged on the second loan itself |
| Occupancy | Primary, second home or investment property | Set by the second-lien lender |
| Documentation | Full file, appraisal, seasoning checks | Lender-specific; usually an appraisal |
| Monthly payments | One | Two |
Two notes on the table. The 80% figure applies to a one-unit principal residence, while two- to four-unit principal residences, second homes and investment properties are written at 75% on a cash-out, so occupancy sets the leverage. And no agency guide governs a standalone second lien that a lender keeps, which is why that column reads “set by the lender.” Those limits vary, so ask any second-lien lender for its combined-leverage and credit rules.
Key Terms Defined
Cash-out refinance: A new mortgage that pays off your current first loan and gives you the difference in cash. Freddie Mac describes it as a mortgage with no specific restrictions on how the proceeds are used.
Second mortgage: Any loan secured by your home that sits behind the first mortgage in line for repayment.
Home equity loan: A lump sum, usually at a fixed rate, repaid in regular payments. The CFPB classes it as a second mortgage when a first mortgage exists.
HELOC: A home equity line of credit, an open-end line you can borrow against repeatedly during a draw period.
LTV and CLTV: Loan-to-value is your loan divided by the home’s appraised value. Combined LTV adds every loan on the home to that math.
PMI: Private mortgage insurance, charged on a conventional loan above 80% LTV. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
How the “No PMI” Part Actually Works
Mortgage insurance is a feature of the first mortgage and its leverage. On the agency path, it is required above 80% LTV, with one exception: the wholesale no-MI cash-out lane covered below. Nothing about the product label changes that. A cash-out refinance creates a brand-new first mortgage, so the new loan’s LTV decides the question. At or under 80% on a one-unit primary home, there is no mortgage insurance to pay. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
A second mortgage works differently. Your existing first loan stays as it is. If you already carry PMI on it, the second loan does not remove it, and it can get in the way of canceling it. The CFPB notes that a borrower-requested cancellation requires certifying there are no junior liens, and the servicer must end PMI automatically at 78% of the original value. That is the quiet catch in the “second mortgage, no PMI” idea. The new loan may not charge PMI itself, yet it can keep PMI alive on the old one.
Some context on cost. Lendmire’s conventional program sheet lists typical annual mortgage insurance premiums of 0.58% to 1.86% of the balance. Treat that as a program-sheet range, not a quote. It matters when you compare an option that stays above 80% against one that does not.
Then there is the wholesale lane that goes past 80%. It is the exception to the eighty-percent rule, and it is the case where a cash-out refinance can reach more equity than a standard one without a premium, up to 89.99% LTV. The lane is not written in Texas, and its full requirements are listed in the FAQ below. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
When a Conventional Cash-Out Refinance Is the Better Fit
A cash-out refinance usually wins when the old first mortgage has nothing special to protect. Several situations point that way.
- You want one payment. The new loan absorbs the old one, so you manage a single mortgage. The CFPB’s comparison brochure makes the same point.
- You need a large amount. At 80% LTV on a one-unit primary home, a cash-out reaches more equity than most second-lien lenders will add on top of an existing loan, given the equity cushion lenders typically require.
- You hold a second mortgage already. Paying off a non-purchase second lien during a refinance makes the loan a cash-out under Fannie Mae’s rules, even if you take no cash. Folding it in can simplify things. See Fannie Mae’s limited cash-out guidance.
- You carry PMI on the current loan. If the new first loan lands at or under 80% LTV, the PMI goes away with the old loan. That can be a real reason to refinance rather than layer a second loan on top.
- You want a defined term and a fixed structure. A new first mortgage resets the schedule cleanly.
The tradeoffs are real. The CFPB notes that a cash-out refinance generally carries higher closing costs, and the new first loan may be priced higher than the one you have now. You also reset the clock on the whole balance, not just the new cash. Qualification is a full-file process: wholesale programs start at a 620 decision score, the automated finding governs most files, and the total ratio ceiling is 50%.
The seasoning rules matter too. The first mortgage being paid off must be at least 12 months old, measured note date to note date, and at least one borrower must have been on title for six months. Exceptions exist for delayed financing, inheritance and legal awards. Freddie Mac’s Guide lays out the title requirement and the delayed-financing exception. A home listed for sale at disbursement is generally not eligible for delivery to Fannie Mae, so confirm current treatment before pulling cash while a listing is active.
When a Second Mortgage Is the Better Fit
A second mortgage tends to win when your first loan is worth keeping or the amount you need is modest.
- Your first mortgage terms are hard to replace. If you are happy with the loan you have, a second mortgage leaves it untouched. The CFPB notes a cash-out refinance may carry a higher rate than your current mortgage, so protecting a good first loan can matter a lot.
- You need a smaller sum. Paying refinance closing costs on the whole balance to reach a small amount can be an expensive trade. A separate loan limits the cost to the new money.
- You want flexibility. A HELOC lets you borrow only what you need and repay it, though the lender may stop further draws if the home’s value falls significantly.
- Your equity is thin for a refinance. When a cash-out refinance cannot reach the amount you need, a second lien may be the only workable path. Combined leverage still has to stay inside what the first-lien investor allows.
The catches are real here too. You carry two payments. A HELOC’s variability can make budgeting harder, and the repayment period follows the draw period. The CFPB notes a HELOC’s APR reflects interest only, so closing costs have to be compared separately. A second mortgage also leaves a cost for later: if you refinance the first loan down the road and keep the second, the second must be resubordinated to the new first, per Fannie Mae’s subordinate financing rule.
One more detail catches people. For combined leverage, Fannie Mae counts the full HELOC credit limit, drawn or not, per its HCLTV rule. An undrawn line still uses up room, which can limit a later refinance of the first mortgage.
How Occupancy and Property Type Change the Answer
Leverage on a cash-out follows occupancy. A one-unit primary home reaches 80%. Two- to four-unit principal residences, second homes and investment properties sit at 75%. The Fannie Mae Eligibility Matrix is the document that governs those maximums, and it also adds reserve requirements on cash-out files with higher automated debt ratios. A cash-out is not limited to a primary residence, but a lower leverage cap applies off that path. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
Texas deserves a pointer. A cash-out on a Texas homestead, a Section 50(a)(6) loan, is capped at 80% of the home’s value by the state constitution, and the wholesale no-MI lane is not written there. Anyone in Texas should ask early how that structure fits.
Rate-and-Term or Limited Cash-Out: A Third Option
Some homeowners do not need cash. If the goal is a better structure on the first mortgage, a rate-and-term (limited cash-out) refinance can pay off the existing loan, closing costs and a purchase-money second lien with only incidental cash back. That rate-and-term limit differs by agency: Fannie Mae allows the lesser of 2% of the new loan amount or $2,000, while Freddie Mac allows the greater of 1% of the new loan amount or $2,000. On a one-unit principal residence, a rate-and-term refinance can reach 95% LTV, with mortgage insurance required above 80%, which is a higher ceiling than the 80% a conventional cash-out allows on the same home. It is a different tool, so it is worth ruling in or out first.
A Simple Way to Decide
Work through these questions in order:
1. How much cash do you need, in percentage terms? Compare your current balance plus the new cash against 80% of the home’s value. If it lands at or under, a cash-out refinance can avoid mortgage insurance.
2. Is your current first mortgage worth keeping? If yes, lean toward a second mortgage.
3. Do you pay PMI today? If yes, check whether a cash-out refinance would end it, and whether a second lien would block cancellation.
4. Do you already have a second lien? If so, a refinance may have to pay it off or resubordinate it.
5. Can you handle two payments, or a variable one? If not, one fixed first loan may suit you better.
A quick scenario, without dollar figures: picture a homeowner whose first mortgage sits at 55% of the home’s value and who needs cash to reach 75% combined. A cash-out refinance at 75% would stay under the 80% line with no mortgage insurance. A second mortgage could reach the same combined figure while keeping the original loan. The right pick depends on how the old loan’s terms compare with what a new first loan would carry, which only a quote can show.
Whatever you pick, the home is collateral. As the CFPB warns, falling behind could cost you the home, so treat the cash as borrowed against your house rather than as free money.
Frequently Asked Questions
Does a second mortgage avoid PMI?
Usually the second loan itself does not carry PMI, but that does not make the overall structure free of it. If your first mortgage already has PMI, a second lien can block a borrower-requested cancellation, because that request requires no junior liens. Check how a new second loan interacts with PMI you already pay.
Can a cash-out refinance be done without mortgage insurance?
Yes, when the new first loan is at or under 80% LTV on the agency path. A wholesale no-MI lane also reaches 89.99% LTV with a 680 score, a 50% ratio ceiling, a thirty-year fixed rate, a primary residence and a conforming balance, with six months of seasoning. It is not written in Texas. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Is paying off my HELOC in a refinance the same as a rate-and-term refinance?
Not usually. Fannie Mae treats paying off a subordinate lien that was not used to buy the home as cash-out, even if you take no cash. That changes the leverage limits that apply, so confirm how the payoff will be classified.
How much equity do I have to leave in the home?
It depends on the loan. On a conventional cash-out refinance of a one-unit primary home, leverage tops out at 80%. For second mortgages, the CFPB describes a typical practice of lenders keeping a share of value as equity, in a range of 10% to 20%. That is typical practice rather than a rule.
Do I need to have owned the home for a while?
Yes, in most cases. The first mortgage being paid off must be at least 12 months old, and a borrower must have been on title for six months. Delayed financing, inheritance and legal-award exceptions exist. A second mortgage follows the second-lien lender’s own seasoning rules.
Which One Fits You
A cash-out refinance fits the homeowner who wants one payment, needs a larger amount, and can land the new first loan at or under 80% LTV, or inside the wholesale no-MI lane. A second mortgage fits the homeowner with a first loan worth protecting, a smaller need, or a preference for flexibility. Neither wins on cost alone, and the answer can flip when the existing loan’s terms change the math. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
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 with consumer lending licenses in 16 states. FHA, VA, conventional and jumbo purchase and refinance loans are arranged through wholesale lending partners, and each application is reviewed individually by the lender. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
For current guidelines, see conventional loan programs.
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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. CFPB
4. CFPB, Home equity loan, HELOC and cash-out refinance brochure
5. Fannie Mae’s limited cash-out guidance
7. Fannie Mae’s subordinate financing rule
8. HCLTV rule
9. Fannie Mae Eligibility Matrix
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 Reserves Are Verified on a Conventional Cash-Out Refinance? · Can a Conventional Cash-Out Refinance Keep Your First Mortgage in Place? · How to Get a Conventional Cash-Out Refinance Under a Seasoning Exception
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.