The Quick Read: A cash-out refinance does not pay PMI off directly. It replaces your old loan, and the old loan’s borrower-paid PMI ends at payoff. The new loan needs its own mortgage insurance only if it lands above 80% loan-to-value. A standard conventional cash-out on a one-unit primary residence tops out at 80%, so it often lands right at that line. Subject to lender guidelines and full file review.
What Happens to PMI in a Cash-Out Refinance?
Your old PMI stops when the old loan is paid off. The new loan is judged on its own. If the new balance is 80% or less of the appraised value, the agency path does not require mortgage insurance. If it is above 80%, the agency path requires it, and Freddie Mac’s Guide says so directly. One exception exists, and it is covered below: a wholesale no-MI cash-out lane.
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: 7.24% as of October 29, 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.
PMI is private mortgage insurance. It protects the lender, not you, when your down payment was under 20%. Lendmire’s 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.
Two misconceptions come up constantly. First, “a cash-out wipes out PMI automatically.” It ends the old policy. The new loan carries its own if the numbers say. Second, “PMI never goes away.” It does, on many loans, and you may not need a refinance to make that happen.
Do You Need a Cash-Out Refinance at All?
Not necessarily. If PMI is your only goal, check the free routes first. A refinance costs money, and cancellation on your existing loan often costs little or nothing.
| Route | Replaces your loan? | New valuation? | New closing costs? |
|---|---|---|---|
| Automatic termination at 78% | No | No | No |
| Request cancellation at 80% | No | Sometimes | No |
| Cancel on current value | No | Yes, at your expense | No |
| Rate-and-term refinance | Yes | Yes | Yes |
| Cash-out refinance | Yes | Yes | Yes |
Here is how the first three work. The CFPB says you can ask your servicer to cancel PMI once your balance is scheduled to reach 80% of the home’s original value. Extra principal payments pull that date forward. The servicer may ask you to certify there are no junior liens, like a second mortgage. It may also want proof the home has not dropped below its original value.
If you do nothing, the Homeowners Protection Act requires termination at 78% of original value when you are current. Per the OCC, final termination also applies at the midpoint of the loan’s amortization period. The law covers loans made after July 29, 1999.
Appreciation is the third route. Freddie Mac’s servicing guide allows cancellation on current value. The LTV must be 75% or less if the loan is seasoned two to five years, and 80% or less after five years. The two-year minimum is waived for substantial improvements, though the LTV must still be 80% or less. For Fannie Mae loans, the servicer acts on current value only when you ask, and you pay for the valuation.
So a home that rose in value does not drop PMI on its own. Automatic termination follows the original-value schedule. Anything based on today’s value needs a request and an appraisal or broker price opinion.
Cash-Out Refinance Requirements, Item by Item
The requirements are leverage, seasoning, credit, ratios, and valuation. Across the wholesale programs we place files with, these are the ones that decide most files. Each is subject to lender guidelines and full file review, and none is a commitment to lend.
Leverage. Conventional cash-out is 80% LTV on a one-unit principal residence. It is 75% on two- to four-unit principal residences, second homes, and investment property. Occupancy sets the leverage. In Texas, a cash-out on a homestead (a Section 50(a)(6) loan) is capped at 80% of the home’s value by the state constitution. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
Seasoning. Seasoning is the waiting period before you can cash out. The first mortgage being paid off must be at least 12 months old, measured note date to note date. A borrower must also be on title for six months. Exceptions exist for delayed financing, inheritance, and legal awards. These are two separate clocks. Fannie Mae confirmed the 12-month existing-loan rule, and Freddie Mac’s cash-out page carries the same two clocks.
Credit and ratios. The wholesale conventional programs start at a 620 decision score. The automated underwriting finding governs most files, with a total debt-to-income ceiling of 50%. Manually underwritten loans use 36% or 45%, with reserve and score factors from the Eligibility Matrix. Fannie Mae’s matrix also notes that reserves apply to automated cash-out files when the ratio is above 45%.
Waiting periods after credit events. These are agency rules. They run four years from a chapter 7 discharge, seven from a foreclosure, and four from a short sale or deed-in-lieu. Documented extenuating circumstances can shorten them.
Pricing. Cash-out loans carry loan-level price adjustments from Fannie Mae, based on LTV and credit score. That is a cost of taking cash. It is the reason a plain payoff refinance is cheaper.
Valuation. The appraisal controls the new value. Any estimate entered up front gives way to it.
How the New Loan Amount Gets Built
The new loan is the sum of four pieces: the payoff of your old first mortgage, any closing costs you finance, any liens you pay off, and the cash you want. Divide that total by the appraised value and you have the new LTV.
That last number decides the insurance outcome. Here is a scenario with no dollar figures. Say your home appraises where you hoped, and your payoff is about 70% of value. Financing closing costs adds a little. Taking modest cash adds more. If the total stays at or under 80%, no agency mortgage insurance applies. Take more cash, or catch a low appraisal, and the same loan can cross the line.
Rolling closing costs into the balance is not free. It raises the balance and the LTV. A small amount can be the difference between no PMI and PMI.
Cash-Out vs. Limited Cash-Out
A limited cash-out refinance, also called rate-and-term, only pays off your first mortgage, the closing costs, and a purchase-money second lien. Cash back is incidental. Fannie Mae allows the lesser of 2% of the new loan or $2,000. Freddie Mac allows the greater of 1% of the new loan or $2,000.
The trade-off is plain. Limited cash-out reaches 95% LTV on a one-unit principal residence, and 97% where the existing loan is agency-owned and the first-time-buyer program allows. That leverage can leave mortgage insurance on the new loan, since it applies above 80%. Taking real cash out lowers the cap to 80% and raises pricing. In exchange, the new loan can land under the insurance line. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
| Factor | Limited cash-out | Cash-out |
|---|---|---|
| Max LTV, one-unit primary | 95% (97% in some cases) | 80% |
| Cash back | Incidental only | Any amount within limits |
| Mortgage insurance | Often needed above 80% | Usually not at 80% or less |
| Pricing adjustments | Lower | Higher |
Buying out a co-owner under a written agreement counts as limited cash-out at both agencies.
When Cash-Out Brings Insurance Back, and When It Doesn’t
The answer depends on where the new LTV lands. The same home, at three levels of cash:
| New LTV | Mortgage insurance on agency path? |
|---|---|
| 70% | No |
| 80% | No (at the line) |
| Above 80% | Yes |
A standard cash-out cannot go above 80% on a one-unit primary residence, so on that path it generally avoids insurance by design. The risk is on the other side: a limited cash-out above 80%, or a low appraisal that shrinks your equity cushion.
Now the exception. A wholesale lane we place files in reaches 89.99% LTV with no mortgage insurance. It requires a 680 score, a 50% ratio, a thirty-year fixed rate, a primary residence, a conforming balance, and its own six months of seasoning. It is the one exception to the 80% rule. It is not written in Texas. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Edge Cases Where the Rule Bends
- Student-loan cash-out. Fannie Mae waives the cash-out price adjustment when its requirements are met. Standard cash-out LTV caps still apply, and cash back to you is limited to the lesser of 2% of the new loan or $2,000. Check the current guide version before relying on it.
- PACE loans. Fannie Mae’s guide makes a borrower ineligible for cash-out if they refinance the first mortgage with enough equity to pay off a PACE loan but choose not to.
- Free-and-clear homes. A new loan on a home with no mortgage is treated as cash-out.
- Seasoning exceptions. Freddie Mac exempts special-purpose cash-out and certain other transactions from the 12-month first-lien rule. The Guide has the details.
- Second mortgages and HELOCs. These can block cancellation on the old loan. They also count toward combined LTV limits on a new one.
- Second homes, two- to four-unit homes, and investment property. Occupancy sets leverage, and the cap is 75%.
- FHA loans. FHA insurance is not PMI and falls outside the Homeowners Protection Act, as the CFPB’s examination manual notes. Refinancing into a conventional loan can end it, but only if you have enough equity.
- Lender-paid mortgage insurance. Disclosure and termination rules differ. A refinance may be the only way out.
Is It Worth It? The Honest Math
Run the whole decision, not just the PMI line. Ending PMI lowers your monthly cost, but a refinance also changes your rate, your term, and your balance. A new loan restarts amortization. Closing costs are a meaningful share of the loan. “No-closing-cost” offers generally mean the costs are built into the rate or the balance. The usual test is break-even: how long the monthly savings take to repay what you paid to refinance.
Cash-out is the wrong tool in a few situations:
- Your old loan will shed PMI on its own soon.
- You want no cash. Limited cash-out is cheaper.
- Taking cash pushes you over 80% and brings insurance back.
- You would give up a rate or term you like for a small saving.
It is the right tool when you want cash anyway, you have the equity, and ending PMI is a bonus. Lendmire’s cash-out refinance programs page lays out how the leverage works by occupancy.
The Process, Step by Step
1. Compare routes. Check your PMI disclosure for the original-value date, and see whether appreciation qualifies you for cancellation.
2. Check the clocks. Confirm the age of your loan and your time on title.
3. Underwrite. Automated underwriting weighs score, ratios, reserves, and LTV.
4. Appraise. The appraisal sets the new value and the new LTV.
5. Size the loan. Add payoff, financed costs, and cash, and check the total against the cap.
6. Close and pay off. The old servicer is paid, the old PMI ends, and the new loan carries insurance only if it exceeds 80%, or the no-MI lane applies.
Key Terms Defined
PMI: private mortgage insurance, which protects the lender when your down payment is under 20%.
LTV: loan-to-value, the loan balance divided by the home’s appraised value.
Seasoning: the waiting period required before a loan or ownership qualifies for a transaction.
Limited cash-out refinance: a refinance that pays off the first mortgage and costs, with only incidental cash back.
Loan-level price adjustment: a cost added to certain loans, based on factors like LTV and credit score.
Break-even: the point when monthly savings repay the cost of refinancing.
Frequently Asked Questions
Does PMI on my current loan block a cash-out?
No. The old policy simply ends when that loan is paid off. What matters is whether you meet seasoning, credit, ratio, and leverage requirements, subject to lender guidelines.
Will I owe PMI on the new loan?
Only if the new LTV is above 80% on the agency path. A standard one-unit primary cash-out caps at 80%. The wholesale no-MI lane, up to 89.99%, is the exception at a 680 score.
Can I roll closing costs into the loan?
Yes, in many cases, but it raises your balance and LTV. A small increase can push the loan over 80% and bring mortgage insurance back.
How soon after buying can I cash out?
The first mortgage being paid off must be at least 12 months old, and a borrower must be on title for six months.
Can I cancel PMI without refinancing?
Often, yes. You can request cancellation at 80% of original value, and the law requires termination at 78% when you are current. Appreciation can also qualify you under current-value rules, with a valuation at your expense.
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
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.
For the program’s 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 4701.1
2. CFPB
3. OCC HelpWithMyBank: PMI removal
4. Freddie Mac Servicing Guide Section 8203.2
5. Fannie Mae capital markets notice (cash-out eligibility)
6. Freddie Mac cash-out product page
7. 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: Best Cash-Out Refinance Program to Remove Private Mortgage Insurance · Can You Use a Conventional Cash-Out Refinance Right After a Rehab? · Best Cash-Out Refinance Program When Moving Into a Conventional Loan
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
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- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.