The Quick Read: It repays the note only up to the room the new loan leaves after the existing first mortgage and closing costs are paid. On a conventional cash-out refinance of a one-unit primary residence, the ceiling is 80% of the appraised value. Whatever remains after the first mortgage payoff, any other liens and costs can go to the note holder. Anything beyond that has to come from your own cash or a negotiated settlement.
“Money partner note” is not a regulatory term. This article uses it for a private, non-bank note, owed to a friend, relative or investor, that may or may not be recorded against your home. Whether it is recorded changes how the refinance treats it.
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.
What Is a Cash-Out Refinance, and Why Does It Fit a Private Note?
A cash-out refinance replaces your current first mortgage with a larger one. The new loan pays off the old balance, covers closing costs, and releases the rest as cash. That cash has no restrictions on its use, so it can go to a note holder as easily as to a contractor.
A rate-and-term refinance is the opposite tool. It swaps one loan for another and allows only incidental cash back. Paying off a private note that was not used to buy the home generally pushes a file out of rate-and-term and into cash-out treatment, even if you never see the money yourself. Fannie Mae’s cash-out refinance guidelines list paying off subordinate liens of any age as an acceptable use of proceeds.
Lendmire’s cash-out refinance programs page lays out the program options across the wholesale lenders Lendmire works with. The sections below cover how the sizing works.
Key Terms Defined
- Money partner note: A private, non-bank promise to repay money, owed to an individual or investor rather than a lender.
- Lien: A recorded claim against your home that must be paid or released before a clean title passes to a new loan.
- Appraised value: The value the appraiser reports. Every leverage test uses it, not the price you hope to get.
- Combined loan-to-value (CLTV): All loans secured by the home, added together and divided by the appraised value.
- Payoff letter: The note holder’s written statement of the exact amount needed to clear the debt on a given date.
- Lien release: The document, recorded by the title company, that removes a paid-off lien from the property record.
How Much Can the Refinance Actually Repay?
The answer is a subtraction, not a percentage of your equity. Start with the maximum new loan, which is the program’s leverage limit times the appraised value. Then take away:
1. The payoff of your current first mortgage.
2. Any other liens that stay or get paid.
3. Closing costs, prepaid items and any financed mortgage insurance or fees.
What is left is the most that can reach the note holder.
For a conventional cash-out refinance, Lendmire’s wholesale programs allow 80% LTV on a one-unit primary residence and 75% on two- to four-unit primary residences, second homes and investment property. Occupancy sets the leverage. Say your home appraises at 100 units of value and your first mortgage is 50% of that. At 75% leverage, you have 25 percentage points of room before costs. If closing costs take an assumed 3 of those points, roughly 22 points can go toward the note. Larger than that leaves a shortfall.
A few things shrink the room fast:
- A low appraisal. The appraised value is the denominator in every test. If it comes in below your estimate, the room shrinks with it.
- Other liens. A home equity loan or second mortgage counts against the combined ceiling.
- Mortgage insurance. On the agency path, insurance is required above a set loan-to-value threshold, with one exception: a wholesale no-MI cash-out lane for a primary residence with a minimum credit score, a capped debt-to-income ratio and a thirty-year fixed rate on a conforming balance. That lane carries its own six months of seasoning, and it is not written in Texas.
Different lenders and programs set different limits, so confirm the figures that apply to your file. Final terms depend on lender guidelines, property type, leverage, and a full review of your credit picture.
Does the Type of Note Change the Answer?
Yes, mostly in the paperwork, not the math.
| Note type | What’s owed | What the refinance needs | Effect |
|---|---|---|---|
| Recorded lien on the home | Payoff amount | Payoff letter and recorded lien release | Counts as a subordinate lien and generally triggers cash-out treatment |
| Unsecured note | Payoff amount | Payoff letter; signed note and payment history | A debt you choose to pay from proceeds |
| Note kept in place | Ongoing balance | Holder’s agreement to stay behind the new first mortgage | Counts toward combined leverage |
| Equity share, not a note | Negotiated buyout | A written agreement defining the amount | Depends on what the agreement says |
If the lien stays, Fannie Mae’s limited cash-out rules say it must be clearly subordinate to the new first mortgage. That means the holder signs off on staying second.
An equity partner is a different animal from a note holder. A debt partner is owed a fixed amount. An equity partner owns a share of the outcome, so the buyout number is a negotiation. Lenders need that number in writing before they can size the loan. The one related case that works cleanly is buying out a co-owner under a written agreement, which both Fannie Mae and Freddie Mac treat as a limited cash-out transaction.
The Step-by-Step Sequence
1. Classify the note. Is it recorded against the home, or unsecured? This decides what title work is needed.
2. Gather the paper trail. Collect the signed note, any recorded instrument, the payment history and the holder’s contact information. An informal, undocumented note is hard to pay off cleanly at closing. This is where files stall.
3. Request a payoff letter. The holder states the exact amount owed as of a payoff date.
4. Order the appraisal. It sets the ceiling for everything else.
5. Run the subtraction. Maximum loan, minus first mortgage, minus other liens, minus costs. Compare the result to the payoff.
6. Underwrite the file. The lender verifies income, assets, credit and debt ratios. The wholesale conventional programs start at a 620 decision score, with a total ratio ceiling of 50% on most automated findings. If the note payment was in your ratio, paying it off may help. Ask how the lender counts it.
7. Close and disburse. The title company pays the note holder directly from proceeds and records the release.
One timing point matters for the holder. On a refinance of a primary residence, the CFPB explains that borrowers generally get three business days to cancel, and that clock starts only after the right paperwork is signed and delivered. Funds are not released until it ends. If your note holder expects money on a set date, build in that buffer.
Seasoning and Timing Rules That Can Block the Deal
Two clocks matter on a conventional cash-out. The first mortgage you are paying off must generally be at least 12 months old, counted note date to note date. And you generally need to have been on title for 6 months. Exceptions exist for delayed financing, inheritance and legal awards.
This catches people who bought recently and borrowed from a partner to do it. A refinance too soon after purchase may simply not be available, and a note coming due before the seasoning clock runs out is a real problem. Freddie Mac’s cash-out refinance page points to its Guide for the details, and waiting periods vary by program. Lenders also set their own overlays on top of agency rules.
Where the General Rule Breaks
Several edge cases change the answer.
Rate-and-term products won’t do it. FHA Streamline and the VA IRRRL are built for people who already have an FHA or VA loan. Neither is the tool for repaying a private note. An IRRRL is meant to refinance the existing VA loan, not to take equity out or pay off other debts. FHA Streamline is the same in spirit: no meaningful cash back. If the note must be paid, the deal works to a cash-out program.
FHA cash-out has a lower ceiling. HUD’s Mortgagee Letter 2019-11 lowered the maximum LTV and combined LTV on FHA cash-out refinances from 85% to 80% of adjusted value. Because the cap is combined, any other lien counts against it.
The purchase-money exception. A second lien used to buy the home is treated differently from one used for other purposes. If your partner’s money funded the down payment, the note may qualify as purchase-money. That takes documentation, and the lender decides.
Texas. 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 that cap holds whatever the occupancy. The wholesale no-MI lane is not written there.
Occupancy. A cash-out can be written on a primary residence, second home or investment property, and occupancy sets the leverage. This article is about the home you live in.
What If the Note Is Bigger Than the Room?
You have a few paths:
- Bring cash. Fill the gap from savings or other assets.
- Negotiate a partial payoff. Pay what the refinance supports and renegotiate the rest, ideally in writing.
- Leave a subordinate piece in place. If the holder agrees to stay behind the new first mortgage, a smaller piece can remain. It still counts toward combined leverage.
- Wait. Time can build equity or satisfy seasoning, but only if the note’s due date allows it.
- Sell the home. If the numbers never work, a sale clears the note without new debt.
| Option | Best when | Main tradeoff |
|---|---|---|
| Cash-out refinance | Equity covers payoff and costs | Larger first mortgage on your home |
| Bring cash to closing | You have savings to close the gap | Drains reserves |
| Partial payoff plus negotiation | Holder is flexible | Requires a written agreement |
| Sale | Equity is thin or income is stretched | You give up the home |
What the Swap Really Costs You
You are trading a separate obligation for a larger first mortgage. The monthly note payment goes away, but the whole first mortgage is repriced, and a bigger balance can stretch the time it takes to pay the home off. The CFPB’s home equity guide also warns that you are borrowing against your home and risk foreclosure if you fall behind.
An unsecured, informal debt becomes secured by your house. That is the real cost. If the note holder is flexible and your cash flow is comfortable, the swap may be worth it. If the note is small relative to the new balance, weigh whether a different path costs less.
Conventional loans above 80% LTV carry mortgage insurance, which cancels at 80% of the original value on request and ends automatically at 78% under the Homeowners Protection Act. Lendmire’s conventional program sheet lists typical annual premiums of 0.58% to 1.86% of the balance, and the exact amount depends on the file. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Frequently Asked Questions
Can a cash-out refinance repay a private note that isn’t recorded on my house?
Yes. Cash-out proceeds carry no restrictions on use, so an unsecured note can be paid like any other debt. The lender will still want the signed note, payment history and a payoff letter so the amount is documented and the payment is made directly at closing.
Will a limited cash-out (rate-and-term) refinance work instead?
Usually not. A rate-and-term loan pays off the existing first mortgage, the closing costs and a purchase-money second lien, with only incidental cash back. Fannie Mae’s figure is the lesser of 2% of the new loan amount or $2,000; Freddie Mac’s is the greater of 1% of the new loan amount or $2,000. Repaying a non-purchase-money note generally converts the file to cash-out.
What if my appraisal comes in low?
The ceiling drops with it. Every leverage test runs on appraised value, so a lower number shrinks the cash available for the note. You can then bring cash, negotiate a smaller payoff, or wait and revisit the refinance.
Can I cancel after closing and keep the money?
Not in a way that helps. You generally have three business days to cancel a refinance of a primary residence, but canceling does not erase your original loan. You still owe it, and funds are held until the window ends.
Does my credit score matter for this?
Yes. Lendmire’s wholesale conventional programs start at a 620 decision score, and the no-MI lane requires 680. Waiting periods after credit events follow agency rules, and every figure is subject to lender guidelines and full file review.
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: Cash-Out Refinance Transactions
2. Fannie Mae Selling Guide: Limited Cash-Out Refinance Transactions
3. CFPB: How Long Do I Have to Rescind When Does the Right of Rescission Start
4. Freddie Mac: Cash-out Refinance
5. HUD Mortgagee Letter 2019-11
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 Much Overtime Income a Cash-Out Refinance Lender Will Count · How to Retitle an Inherited 2-4 Unit for a Cash-Out Refinance · How Much a Cash-Out Refinance Lends Versus a Personal Loan
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.