The Quick Read: A cash-out refinance can end private mortgage insurance (PMI). A home equity loan cannot, because it sits behind your first mortgage and leaves that loan, and its insurance, in place. For many homeowners, a third path beats both: cancel the PMI on the loan you already have, then decide whether you still need cash.
Which option suits which homeowner comes down to three situations. A cash-out refinance fits you if you want cash and the new first loan lands at or below 80% of your home’s value. A home equity loan fits you if your current first mortgage is worth keeping and you can live with PMI a while longer, or if you expect to cancel it later. Neither fits well if your PMI is already close to dropping off on its own.
Key Takeaways
- PMI is insurance on your first mortgage. Adding a second loan does not touch it.
- A cash-out refinance replaces the whole first mortgage. When the new loan is at or below 80% of value, the new loan needs no PMI.
- A second loan can make later cancellation harder, because a cancellation request generally requires that you have no junior liens.
- You may not need either product. Cancellation rules can end PMI without a new loan.
- Occupancy and unit count set the leverage cap on a cash-out refinance. Leverage is the share of the home’s value you borrow against.
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
The table below covers the structural differences. It leaves out pricing on purpose, since that depends on your file and shows up on your Loan Estimate.
| Factor | Cash-Out Refinance | Home Equity Loan |
|---|---|---|
| What it is | New first mortgage replaces the old one | Second loan behind your first |
| Effect on current PMI | Old policy ends with the old loan | Unchanged; first loan keeps it |
| Leverage | 80% on a one-unit primary home | Set by the second-lien lender |
| Other occupancy types | 75% on 2-4 units, second homes, investment | Varies by lender |
| Credit floor | 620 on wholesale conventional programs | Varies by lender |
| Seasoning | First loan 12+ months old; 6 months on title | Varies by lender |
| Payments | One mortgage payment | Two payments |
| Documentation | Full file review, new appraisal | Often an appraisal or valuation |
Two rows deserve a closer look. The first is leverage. The 80% cap on a cash-out is the same line PMI uses, which is why a cash-out can wipe PMI out and a purchase loan at 95% cannot. The second is seasoning, the waiting period before you can refinance. The loan being paid off must be at least 12 months old, counted note date to note date. A borrower must also have been on title for 6 months. Delayed-financing, inheritance and legal-award exceptions exist.
How PMI Actually Works Here
PMI protects the lender on your first mortgage when you borrowed more than 80% of the value. On the agency conventional path, mortgage insurance is required above 80% loan-to-value (LTV), the loan balance divided by the home’s value. The one exception is a wholesale no-mortgage-insurance cash-out lane, covered below.
That insurance attaches to the loan, not to you. Pay the loan off and the policy ends. Keep the loan and add a second one behind it, and the policy keeps running.
This is why a home equity loan feels like a fix and is not. You get cash. You may even feel you have “used” your equity. But your first mortgage still carries the insurance, and you now owe a second payment on top of it.
When a Cash-Out Refinance Is the Better Fit
A cash-out refinance is the better fit when you want cash and the PMI gone in one step, and your numbers clear the cap. The new first loan pays off the old one and can include cash back. If the new balance comes in at or below 80% of value on a one-unit primary residence, the new loan carries no PMI.
Consider a homeowner who bought with 5% down and carries PMI today. Home values nearby have risen, and the homeowner wants to fund a kitchen and bathroom project. An appraisal shows the current balance plus the cash wanted lands at 78% of value. One new loan covers the payoff, the project money and the closing costs, and the PMI ends with the old loan. That is the profile where cash-out shines. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Several other situations favor it:
- You also want to fold a second loan in. If you already carry a home equity loan or HELOC from a non-purchase borrowing, a refinance can pay it off. Lenders generally treat that as cash-out, so it counts against the 80% cap.
- You prefer a single payment. One mortgage is simpler to track than two.
- You want a different loan structure. A refinance lets you change terms, not just add cash. Lendmire’s cash-out refinance programs page lays out how those programs work.
Cash-out is written on a primary residence, a second home or an investment property, and occupancy sets the leverage. Two- to four-unit primary residences, second homes and investment properties top out at 75%, not 80%. Only a one-unit primary residence reaches the 80% line.
Texas adds its own rule. 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, whatever the property type or lender program.
The wholesale lane that goes past 80%
Across the wholesale programs Lendmire places files with, one lane reaches 89.99% LTV with no mortgage insurance. It requires a 680 score, a 50% total ratio, a thirty-year fixed rate, a primary residence and a conforming loan balance, plus its own six months of seasoning. It is the one exception to the 80% rule above. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
This lane is not written in Texas. Not every file fits. But if you have less equity than the 80% line demands, it is worth asking about. Lendmire’s piece Best Cash-Out Refinance Program When You Want PMI to Go Away goes deeper on that lane.
What a cash-out costs you
A cash-out re-papers your entire first loan, not just the new money. Closing costs are generally higher than on a second lien. Cash-out also carries loan-level pricing adjustments that depend on your credit score and leverage. You are replacing the old loan’s terms with new ones, so weigh what you give up as well as what you gain. Any figures appear on your Loan Estimate, and everything is subject to lender guidelines and full file review.
When a Home Equity Loan Is the Better Fit
A home equity loan is the better fit when your first mortgage is worth keeping, you need a defined amount of cash, and PMI is not your main problem. It adds a second lien behind your current mortgage. Your first loan, its terms and its insurance stay as they are.
Say a homeowner with a first mortgage at 70% of value needs money for a roof. There is no PMI to remove, since that loan already sits under the 80% line. A second loan raises total borrowing, but the original mortgage stays untouched. That is a clean use of a second lien.
A home equity loan also makes sense when:
- The first loan has features you want to keep. Refinancing replaces everything. A second lien does not.
- Your PMI is close to ending anyway. If cancellation is within reach, paying for a new first loan to chase the same result is hard to justify.
- You want to borrow a smaller amount. Second liens can suit smaller needs, though costs vary and a second loan still carries its own appraisal, title and recording charges.
Know the tradeoffs. You have two payments instead of one. A HELOC, the open-ended cousin, typically carries a variable rate, so the cost can move. The CFPB’s guide to using home equity points out that the home is collateral on these loans, so missed payments can put the house at risk. That is true of a cash-out refinance too.
The Catch: A Second Loan Can Block Cancellation
Adding a second lien before you cancel PMI can work against you. To cancel at the 80% mark, the CFPB explains that you must ask in writing and certify there are no junior liens, such as a second mortgage. You must also show the home’s value has not fallen below its original value.
So the sequence matters. Borrow on equity first and you may have complicated the cancellation you were counting on. Cancel first and borrow later, and you keep both doors open. Lenders and servicers apply their own details here, so ask yours before you sign a second loan.
You May Not Need Either One
Federal rules set two points. You can request cancellation when the balance is scheduled to reach 80% of the home’s original value. The servicer must terminate it automatically at 78%, provided you are current on payments, according to the CFPB. If you are behind at the 78% point, the NCUA’s exam guide notes that termination waits until you are current.
Those rules run on original value. Investor guidelines can go further by letting you request cancellation based on current value after appreciation. Freddie Mac’s seller-servicer guide sets different loan-to-value tests depending on how long the loan has been in place, and it accepts an appraisal or a broker price opinion as the valuation. Fannie Mae’s Servicing Guide on terminating conventional mortgage insurance also allows borrower-initiated termination based on the property’s current value. Which one applies depends on who owns your loan, so your servicer can tell you.
So the path might look like this: ask your servicer about current-value cancellation, order the valuation they require, and confirm payment history is clean. If that works, you have dropped PMI for the cost of a valuation. Then, if you still want cash, you can compare a cash-out refinance with a home equity loan from a PMI-free starting point.
A note on FHA
FHA mortgage insurance follows different rules. The CFPB’s examination manual states that the federal cancellation law does not cover insurance under the National Housing Act, such as FHA. Removing it can mean refinancing into a conventional loan. A cash-out refinance can be that exit if you have enough equity.
Common Mistakes
- Assuming a home equity loan removes PMI. It does not.
- Assuming 80% means 80% of today’s value, automatically. The federal default runs on original value. Current value is an investor-rule route that needs a valuation.
- Rolling closing costs into the balance and landing above 80%. The cap applies to the new total, so costs financed into the loan can push you back over the line.
- Missing a late payment. A recent late payment can block cancellation or delay it.
- Borrowing at 95% or 97% and expecting that to work on a cash-out. Those higher figures belong to purchase and limited cash-out loans. Cash-out is capped lower.
- Ignoring time on title. If the first loan is under 12 months old or you have owned the home under six months, a cash-out may not yet be open to you.
Key Terms Defined
PMI (private mortgage insurance): Insurance that protects the lender on a conventional first mortgage when you borrow more than 80% of the home’s value.
Cash-out refinance: A new first mortgage that pays off your current one and gives you cash from your equity.
Home equity loan: A second loan, secured by your home, that sits behind your first mortgage.
Junior lien: Any loan recorded behind your first mortgage, such as a home equity loan or HELOC.
LTV (loan-to-value): Your loan balance as a percentage of the home’s value.
Seasoning: The waiting period a loan or ownership must meet before you can refinance.
The Verdict
If PMI is your main pain, the order of operations decides the winner. First, check whether you can cancel on the loan you already have. If so, do that and compare cash options afterward. If cancellation is not within reach and you want cash, a cash-out refinance is the option that can actually end the PMI, provided the new loan fits the 80% cap or the no-mortgage-insurance wholesale lane. If you want a defined sum and your first loan is worth keeping, a home equity loan is a legitimate tool, but it leaves PMI where it is and can complicate cancelling it later.
In short, a cash-out refinance replaces your whole first loan, so it can end the PMI along with delivering cash. A home equity loan adds a second loan and leaves the PMI on your first mortgage untouched. Which one wins depends on your equity, your loan’s age and what you want the money for.
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. Program figures are subject to lender guidelines and full file review, and nothing here is a commitment to lend.
Frequently Asked Questions
Does a home equity loan get rid of PMI?
No. PMI is insurance on your first mortgage, and a second loan leaves that mortgage in place. The insurance keeps running until you cancel it, reach automatic termination or pay the first loan off. A second lien can also complicate a later cancellation request, since the request generally requires certifying that no junior liens exist.
Can I remove PMI with a cash-out refinance?
Yes, when the new first loan is at or below 80% of the home’s value. The new loan replaces the old one, and the old policy ends with it. On the agency path, mortgage insurance applies above 80%, with the wholesale no-mortgage-insurance lane as the exception for eligible files.
How much equity do I need for a cash-out refinance?
On a one-unit primary residence, the cap is 80% of the home’s value, so your new total balance must fit under that line. Two- to four-unit homes, second homes and investment properties are capped at 75%. A wholesale lane reaches 89.99% with no mortgage insurance for eligible primary residences at a 680 score.
Is it better to cancel PMI than to refinance?
Often, yes. Cancelling costs far less than a new loan when you qualify, because you keep your existing mortgage. You can request cancellation at 80% of original value, and the servicer must terminate it at 78% if you are current. Investor rules may also allow a current-value route after appreciation.
Does the same advice apply to FHA loans?
Not quite. Federal cancellation rules do not cover FHA mortgage insurance, so removal is harder and can involve refinancing into a conventional loan. If you hold an FHA loan with built-up equity, a cash-out refinance into a conventional loan is one route to compare.
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.
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. CFPB – Using home equity to meet financial needs
2. CFPB: When Can I Remove Private Mortgage Insurance PMI from My Loan
3. NCUA – Homeowners Protection Act exam guide
5. Fannie Mae Servicing Guide B-8.1-04 – Termination of Conventional Mortgage Insurance
6. CFPB – Homeowners Protection Act examination manual
This article is part of Lendmire’s cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: Can You Get Approved for a Cash-Out Refinance Into a 15-Year Loan Removing PMI? · How PMI Works on a Conventional Cash-Out Refinance · How Lenders Underwrite a Cash-Out Refinance When You Want PMI to Go Away
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.