The Quick Read: It depends on what you need the new loan to do. A rate-and-term refinance swaps your current first mortgage for a new one with a different rate or term and pulls out no meaningful cash. A cash-out refinance borrows against your equity and hands you the difference. Because cash-out takes more risk, lenders ask for lower leverage, a seasoned loan, and time on title. Rate-and-term allows higher leverage and fewer waiting clocks. Everything below is subject to lender guidelines and full file review.
Side-by-Side
The two loans are classified differently before anything else happens. The lender decides which bucket your file falls into, and that sets leverage, seasoning and documentation. Figures below are for conventional loans on the wholesale programs Lendmire places files with.
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.
| Factor | Rate-and-Term | Cash-Out |
|---|---|---|
| Max leverage, one-unit primary home | 95% LTV (97% in some first-time-buyer cases) | 80% LTV |
| Max leverage, 2-4 units, second home, investment | Varies by occupancy | 75% LTV |
| Cash to borrower | Incidental only | Any amount of equity within the cap |
| Seasoning | Few clocks on conventional paper | Loan paid off 12+ months old; 6 months on title |
| Credit floor | 620 decision score on wholesale conventional | 620 decision score; 680 on the no-MI lane |
| Mortgage insurance | Required above 80% LTV | Required above 80% LTV, except the no-MI lane |
| Documentation | Payoff, title, payment history | Same, plus title-seasoning evidence |
Here’s the catch with the table: it shows conventional rules. FHA and VA have their own versions, covered below.
When Rate-and-Term Is the Better Fit
Rate-and-term fits a borrower who wants to change the loan, not tap the house. Typical goals: move from an adjustable to a fixed loan, shorten or lengthen the term, drop mortgage insurance, or buy out a co-owner.
The leverage ceiling is the big difference. Across the wholesale programs Lendmire places files with, a rate-and-term on a one-unit primary residence can reach 95% LTV. It can reach 97% where the existing loan is agency-owned and the first-time-buyer program allows. A cash-out on the same house stops at 80%. A borrower with thin equity often can only do rate-and-term.
“Incidental cash” is the gray zone. Fannie Mae allows the lesser of 2% of the new loan amount or $2,000 back at closing. Freddie Mac sets its limit as the greater of 1% of the new loan amount or $2,000. Go past that and the lender reclassifies the loan as cash-out. Fannie Mae’s limited cash-out guidance also lists ineligible conditions that force cash-out treatment, including a home with no existing first lien.
Two other items stay inside rate-and-term. The new loan can pay off the old first mortgage, closing costs and a purchase-money second lien. A co-owner buyout under a written agreement is also limited cash-out at both agencies. A second lien that funded something other than the purchase can push the file into cash-out. Confirm that with your loan officer before assuming the second rolls in cleanly.
Government streamlines
If your current loan is FHA or VA, the rate-and-term lane gets lighter.
The FHA Streamline needs an existing FHA loan, a current payment record and a net tangible benefit. HUD’s Streamline page says cash back is limited to $500 and closing costs can’t be financed into the new amount. It often carries no appraisal and a limited credit review. FHA rate-and-term with an appraisal reaches 97.75%.
The VA IRRRL needs an existing VA loan and a net tangible benefit. It carries a 0.5% funding fee unless the borrower is exempt, takes no VA appraisal, and requires seasoning of the later of 210 days and 6 payments. VA’s cash-out loan page is the separate product for pulling equity out.
When to skip it
Skip rate-and-term if the real goal is cash. A limited cash-out can’t roll a debt payoff into the new loan beyond the incidental amount. Also skip it when the numbers don’t justify the costs. Divide closing costs by monthly savings to find a break-even, then ask whether you’ll keep the loan that long.
When Cash-Out Is the Better Fit
Cash-out fits a borrower with real equity and a specific use for it: a renovation, paying off higher-cost debt, or a large expense. It trades leverage for liquidity.
Leverage is the first requirement. Conventional cash-out tops out at 80% LTV on a one-unit primary home. It tops out at 75% on two- to four-unit primary residences, second homes and investment property. A cash-out can be written on a primary residence, a second home or an investment property, and occupancy sets the leverage. Texas has its own rule: 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. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Seasoning is the second requirement, and it’s where files stall. The first mortgage being paid off must be at least 12 months old, measured note date to note date. At least one borrower must have been on title for 6 months. Fannie Mae’s cash-out guidance describes the title clock and a delayed financing exception for a recent all-cash buyer. That exception waives only the title wait. The loan is still capped, priced and treated as cash-out.
The third item is reserves and ratios. On Fannie Mae loans run through Desktop Underwriter, a debt-to-income ratio above 45% triggers six months of reserves. The wholesale conventional programs accept a total ratio ceiling of 50% on the automated finding. Manually underwritten loans use 36% or 45% with reserve and score factors from the eligibility matrix.
The no-MI lane
Mortgage insurance is required above 80% LTV on the agency path, with one exception. A wholesale cash-out lane reaches 89.99% LTV with no mortgage insurance at a 680 score and a 50% ratio. It’s limited to a thirty-year fixed, a primary residence and a conforming balance, with its own six months of seasoning. It isn’t written in Texas. Where mortgage insurance does apply, Lendmire’s conventional program sheet lists typical annual premiums of 0.58% to 1.86% of the balance. That’s the sheet’s range, not a quote. Every figure here varies by lender and program — guidelines, property type, leverage, and credit profile all apply.
What cash-out does to your finances
The payment rises because the balance rises. You may also give up a low existing rate to get the cash. A CFPB study of cash-out borrowers found many used proceeds to pay down credit card and auto debt. Credit scores jumped at first, then gradually slid, and card balances drifted back toward earlier levels. Paying off cards with house equity only works if the cards stay paid off.
Key Terms Defined
LTV (loan-to-value): The new loan amount divided by the home’s appraised value.
Seasoning: The minimum time a loan or ownership must exist before a refinance is allowed.
Limited cash-out: The agency name for a rate-and-term refinance that returns only incidental cash.
Delayed financing: A cash-out exception for a recent all-cash buyer, capped by documented purchase investment.
Net tangible benefit: The test a government streamline must pass to show the borrower comes out ahead.
Two Borrowers, One House Type
Picture a borrower with a one-unit primary home and about 15% equity who wants a fixed loan to replace an adjustable one. Rate-and-term fits. The 95% ceiling leaves room, and no seasoning clock on the title blocks it.
Now picture a borrower with about 35% equity who wants money for a kitchen remodel. Cash-out fits. The 80% ceiling leaves room, provided the old loan is at least 12 months old and someone has been on title for 6 months.
A mixed goal, such as lowering the rate and also pulling money, gets treated as cash-out. Price it that way and check the break-even.
Documents Each Path Needs
Both paths need payoff statements, title evidence and payment history. Cash-out adds proof of the title clock. Delayed financing adds the original purchase settlement statement and bank statements showing the source of funds. VA files add the Certificate of Eligibility. Appraisal treatment differs too. A streamline may skip it. A conventional cash-out usually relies on one, though Fannie Mae’s announcement shows value acceptance may replace an appraisal where the automated system offers it. The lender decides, and a waiver is never assured.
Waiting periods after credit events are agency rules: four years from a chapter 7 discharge, seven from a foreclosure, four from a short sale or deed-in-lieu. Documented extenuating circumstances can shorten them. These apply to both loan types.
The Verdict
Pick rate-and-term when the loan itself needs to change and your equity is thin. Pick cash-out when you have equity and a purpose for it. Consider the jumbo lanes if your balance exceeds the conforming limit: those take a 660 decision score, leverage to 90%, and loans to $5,000,000.
If you’re unsure, ask which the lender will classify your file as. That answer drives everything else. Lendmire’s cash-out refinance programs page lays out the equity each program reaches.
Frequently Asked Questions
Can a rate-and-term refinance include any cash back?
Yes, but only a small amount. Fannie Mae allows the lesser of 2% of the new loan amount or $2,000. Past that, the loan is reclassified as cash-out.
Do cash-out refinances have waiting periods?
Yes. The first mortgage being paid off must be at least 12 months old, and a borrower must have been on title for 6 months. Delayed financing, inheritance and legal-award exceptions exist. Rate-and-term on conventional loans generally has fewer of these clocks.
Can I do a cash-out on a second home or rental?
Yes. Occupancy sets the leverage. Conventional cash-out is 80% LTV on a one-unit primary home and 75% on two- to four-unit primary residences, second homes and investment property. Final terms depend on lender guidelines, property type, leverage, and the borrower’s complete credit picture.
Does paying off a second mortgage make it a cash-out?
Sometimes. A purchase-money second lien can roll into a rate-and-term. A second that funded something else can push the file into cash-out. The lender makes the call.
Is mortgage insurance required on both?
Above 80% LTV on the agency path, yes, with one exception: the wholesale no-MI cash-out lane at 89.99% LTV. It can be canceled at 80% on request and ends automatically at 78% under the Homeowners Protection Act, subject to payment history and value.
For your own numbers, request a scenario review with Lendmire.
For current guidelines and terms, see Lendmire’s refinance programs page.
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.
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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 B2-1.3-02, Limited Cash-Out Refinance Transactions
2. HUD FHA Streamline Refinance
4. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
5. A CFPB study of cash-out borrowers
6. Fannie Mae Announcement SEL-2025-04
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 Requirements for Consolidating Debt · Cash-Out Refinance Requirements as a Retiree Living on Assets · Cash-Out Refinance Requirements When You Are Relocating
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.