The Quick Read: A home equity loan sits beside your current mortgage as a second loan, so it does not trigger mortgage insurance on its own. A cash-out refinance replaces your first mortgage, and the agency rules call for mortgage insurance when the loan-to-value ratio (LTV, the loan as a share of the home’s value) climbs high. A wholesale no-mortgage-insurance cash-out lane is the one exception. The better fit depends on how much equity you keep, what your current loan looks like, and how much cash you need. Program details are subject to lender guidelines and full file review.
The honest one-paragraph answer: a cash-out refinance fits you if you want one loan, one payment, and a clean reset of the whole mortgage. A home equity loan fits you if your current first mortgage is worth keeping and you only need a defined lump sum. Neither is “the PMI-free option” by default. Each avoids mortgage insurance for different reasons, and each has a catch.
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 is a mortgage broker. It arranges these loans through wholesale lenders and does not lend directly. Its cash-out refinance programs page lays out how the conventional version works.
Side-by-Side
| Factor | Cash-Out Refinance | Home Equity Loan |
|---|---|---|
| Loan position | New first mortgage | Second mortgage |
| Your current mortgage | Paid off and replaced | Stays in place |
| Number of payments | One | Two |
| Leverage (one-unit primary) | Up to 80% LTV; no-MI lane up to 89.99% | Set by the second-lien lender, counted in combined LTV |
| Credit floor | 620 on wholesale conventional | Set by the second-lien lender |
| Mortgage insurance | Required above 80% LTV, except the no-MI lane | No new first-lien MI; existing MI stays |
| Occupancy | Primary, second home or investment property | Set by the second-lien lender |
| Documentation | Full file review, appraisal | Full file review, appraisal typical |
Two notes on that table. First, the 80% figure drops to 75% for two- to four-unit homes and for second homes and investment property, because occupancy sets the leverage. Second, the home equity loan column is deliberately general. Second-lien terms come from whoever funds the second lien, not from Fannie Mae or Freddie Mac.
Where Mortgage Insurance Actually Comes From
Mortgage insurance attaches to the first mortgage, not to the idea of borrowing against equity. Fannie Mae’s Selling Guide requires it on a conventional first mortgage with an LTV above 80%. The test uses the unpaid balance when the loan is purchased or securitized. Freddie Mac applies the same threshold.
That is why the two products behave so differently.
- Cash-out refinance: you get a brand-new first mortgage. If the new balance lands above 80% of the appraised value, mortgage insurance applies, with the one wholesale exception covered below. If it lands at or below 80%, it does not.
- Home equity loan: the new loan is a closed-end second lien. The first-lien insurance rule does not reach it. Your existing first mortgage, and any insurance already on it, stays exactly as it was.
So “a home equity loan has no PMI” is true as far as it goes. It is also incomplete.
The Catch on Home Equity Loans
Skipping a new insurance premium does not make the second loan free of tradeoffs.
Lenders look at combined LTV, which stacks the first mortgage and the new second loan against the home’s value. Fannie Mae’s guide says lenders must count all subordinate liens. Borrowing more means less equity left over.
The CFPB also notes that second mortgages often carry higher interest rates than first mortgages. A second lien is paid second if the home is sold, so its lender takes more risk. A second mortgage also adds to your overall debt burden, and your home is the collateral.
One more wrinkle if you already pay PMI. To cancel it on request, a servicer can require certification that the equity is not subject to a subordinate lien. A new second loan can complicate that later request.
When a Cash-Out Refinance Is the Better Fit
A cash-out refinance tends to fit when:
- You want one payment. The new first mortgage pays off the old one and hands you the difference in cash. You manage one loan, not two.
- You already carry PMI you would like to be rid of. If the new balance sits at or below 80% LTV, the new loan carries no mortgage insurance. Across the wholesale programs Lendmire places files with, that 80% line is the cleanest way to end it.
- You need a larger amount and have strong equity. Two- to four-unit homes, second homes and investment property reach 75%.
- Your credit and ratios are solid. The wholesale conventional programs start at a 620 decision score. The automated finding governs most files, with a total ratio ceiling of 50%.
There is also the no-mortgage-insurance lane. One wholesale lane reaches 89.99% LTV with no mortgage insurance. It requires a 680 score, a 50% ratio, a thirty-year fixed rate, a primary residence and a conforming balance, plus six months of seasoning of its own. This lane is the one exception to the rule that insurance is required above 80%. If you qualify, you can borrow well past the usual line without a monthly premium. These specifics are subject to lender guidelines and a full review of property, leverage, and credit. The lane is not written in Texas, where a homestead cash-out follows the state’s own cap described below.
For context, when mortgage insurance does apply, Lendmire’s conventional program sheet lists typical annual premiums of 0.58% to 1.86% of the balance. That is a program-sheet figure, not a quote. The borrower may request cancellation at 80% of the original value, given good payment history, no subordinate liens and no decline in value. The servicer must terminate it automatically at 78% under the Homeowners Protection Act.
The waiting-period rules
Cash-out has clocks. The mortgage being paid off must be at least 12 months old, measured note date to note date, per Freddie Mac’s Guide 4301.5. A borrower must also have been on title for six months. Exceptions exist for delayed financing (buying with cash, then refinancing), inheritance and legal awards.
The honest downside
You re-originate the whole first mortgage. If your current loan has terms you like, you give them up on the full balance, not just the cash you pull out. Compare the repriced balance, not only the cash amount. Cash-out loans also carry their own pricing adjustments based on LTV and credit score. And 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.
When a Home Equity Loan Is the Better Fit
A home equity loan tends to fit when:
- Your current first mortgage is worth protecting. The first loan stays untouched. Nothing about its balance, term or schedule changes.
- You need a defined, one-time amount. Per the CFPB, the money arrives as a lump sum, and the rate is usually fixed. That suits a single project or expense.
- You are inside the 12-month window. If your first mortgage is too new for a cash-out refinance, a second lien may be the only route available.
- A refinance would push you past 80% LTV. Say you hold a first mortgage at a modest balance, and a full refinance with the extra cash would put the new loan above 80% LTV. A new first mortgage at that leverage would normally carry mortgage insurance, unless it qualifies for the wholesale no-MI cash-out lane. Leaving the first loan alone avoids a new first-lien premium, though combined leverage still counts for the second lender.
The choice between the two can be close. The cash-out refinance wins on simplicity. The second loan wins on leaving a good first mortgage alone. Which side prevails usually comes down to how far your current loan’s terms sit from today’s terms, and that is a comparison worth running on real numbers with a loan officer.
The honest downside
Two payments, a second lender, and usually higher pricing on the second lien. The CFPB also points out that home equity loans may carry upfront fees and costs, so compare more than the monthly payment. Repayment is often required when you sell. Lendmire arranges conventional first mortgages through wholesale lenders, so for a standalone second lien, ask the lender funding it for its own terms.
What About a HELOC?
A home equity line of credit (HELOC) is the revolving cousin of the home equity loan. It is also a second lien, so the first-lien mortgage insurance rule does not apply to it either. You draw as needed rather than taking a lump sum. The same combined-leverage and second-lien risks apply. One point worth knowing: Freddie Mac’s 12-month seasoning rule does not apply when the loan being refinanced is a HELOC.
Special Cases That Change the Answer
- Already have PMI? A home equity loan leaves it in place. A cash-out refinance at or below 80% LTV ends it, because the old loan is gone. Canceling it directly, when you have reached 80% of the original value with a clean payment history, can cost nothing and may beat both options if cash is not your goal.
- Want to take more cash? Each extra dollar of cash raises the new LTV. Cross 80% and mortgage insurance returns, unless you fit the no-mortgage-insurance lane.
- Only want PMI gone, not cash? A rate-and-term refinance, also called limited cash-out, may fit better. It allows only incidental cash back, and leverage on a one-unit primary residence can run higher than on a cash-out loan, though never above 90% of value.
- Multi-unit or non-primary homes? Occupancy sets the leverage. Expect lower limits than a one-unit primary residence.
- Government-backed loans? FHA and VA loans follow their own insurance and fee rules, so treat the conventional rules above as conventional-only. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Which Path? A Quick Checklist
1. Estimate your home’s value, then add up your first mortgage balance and the cash you want. 2. Divide that total by the value. At or below 80%, a cash-out refinance carries no mortgage insurance. Above it, ask whether you fit the no-mortgage-insurance lane. 3. Check the clocks: first mortgage at least 12 months old, six months on title. 4. Look at your current first mortgage. If its terms are worth keeping, price a second lien. If not, price a refinance. 5. Compare the full Loan Estimate on each route, not just the monthly payment. 6. Remember that using equity to pay off other debt does not eliminate it. It swaps one loan for another, secured by your home.
Key Terms Defined
LTV (loan-to-value): the loan balance divided by the home’s appraised value.
Combined LTV: the first mortgage plus any second loans, divided by the home’s value.
Seasoning: the minimum time you must have held a loan or title before refinancing.
Second lien: a loan paid after the first mortgage if the home is sold.
Private mortgage insurance (PMI): a premium that protects the lender on a first mortgage with a small down payment or low equity.
The Verdict
Pick the cash-out refinance when you want one clean loan, you have equity well under the 80% line, or you qualify for the no-mortgage-insurance lane. Pick a home equity loan when your first mortgage is worth keeping and you want a fixed lump sum. Neither avoids mortgage insurance by magic. One keeps the rule from applying to the new loan, and the other resets the first loan so the rule has to be met on the new balance. The only way to know which is cheaper is to compare both on a full Loan Estimate.
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 avoid PMI?
Usually, yes, for the new loan. The agency mortgage insurance rule attaches to the first mortgage, and a closed-end second lien is not a first-lien loan. Any insurance already on your first mortgage stays on its own schedule, and the second lender sets its own terms.
Does a cash-out refinance always trigger PMI?
No. Insurance applies when the new first mortgage has an LTV above 80%. At or below 80%, it does not. A wholesale lane also reaches 89.99% LTV with no mortgage insurance for qualifying borrowers: a 680 score, a 50% ratio, a thirty-year fixed rate, a primary residence and a conforming balance. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
How soon can I do a cash-out refinance after buying?
The first mortgage being paid off must be at least 12 months old, measured note date to note date, and a borrower must be on title for six months. Delayed financing, inheritance and legal-award exceptions exist. The no-mortgage-insurance lane has its own six-month seasoning.
Can a second loan make it harder to cancel existing PMI?
It can. A servicer may require certification that the equity is not subject to a subordinate lien before canceling on request, per a CFPB compliance bulletin. Ask your servicer what it requires before adding a second lien.
Is it cheaper to keep my first mortgage and add a second loan?
It depends on how far your current loan’s terms sit from today’s terms, your combined LTV and the second lender’s pricing. Compare the total of both payments against the one new payment, plus any insurance, on actual Loan Estimates.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire is a mortgage brokerage (NMLS# 2371349) licensed for consumer mortgage lending in 16 states, arranging FHA, VA, conventional and jumbo purchase and refinance loans through a wholesale lending network. Eligibility is determined by the lender on each file. 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. Fannie Mae Selling Guide B7-1-01, Provision of Mortgage Insurance
2. Fannie Mae Selling Guide B2-1.2-04, Subordinate Financing
3. CFPB
4. Freddie Mac Guide 4301.5, Cash-out refinance Mortgages
5. CFPB
6. CFPB Bulletin 2015-03 on PMI cancellation
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 vs Home Equity Loan With a 12-Month Conventional Seasoning Requirement · Can You Get Approved for a Cash-Out Refinance Without Private Mortgage Insurance?
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
Disclosure information. Lendmire is a state-licensed mortgage brokerage under NMLS# 2371349. Lendmire is not a depository institution, direct lender, or financial advisor — all loans referenced are placed through wholesale lender partners and are subject to each lender's underwriting standards. This article is provided for general informational purposes and is not a commitment to lend, nor does it constitute financial, legal, or tax advice. Loan programs, terms, rates, and qualification standards change without notice and depend on borrower profile, property type, and the state in which the subject property is located. Equal Housing Opportunity provider. NMLS Consumer Access: nmlsconsumeraccess.org.