The Quick Read: A new, larger first mortgage pays off your existing mortgage in full, the old account closes, and you keep the difference as cash. One loan remains, with one payment, and the new rate, term and amortization apply to the entire balance, not just the cash portion. Whether that trade makes sense depends on what you give up on the old loan and what you do with the money.
What Actually Happens to the Old Loan
A cash-out refinance is a replacement, not an add-on. The new lender sends a payoff to your current servicer, the old lien is released, and the new mortgage becomes the only first lien on the home. Nothing stacks on top of anything.
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.
That is the main difference from a home equity loan or HELOC. Those products sit behind your existing mortgage and leave it untouched, so you end up with two payments. With a cash-out refinance you have one loan, but it is bigger and it is brand new.
Lendmire’s cash-out refinance programs page covers the options Lendmire arranges as a broker through wholesale lenders.
Step by Step: From Application to the Old Account Closing
Here is the sequence as it plays out on a typical conventional file.
1. Application and equity check. The lender collects income, asset and credit documents and orders an appraisal. Value sets the ceiling on the new loan.
2. Underwriting. Full documentation applies. The lender checks the old loan’s payment history, how long you have been on title, and how old the existing mortgage is.
3. Loan Estimate. You receive a written estimate showing the new loan amount, costs and cash to you. Compare it against your current loan, not against an ideal.
4. Payoff statement. The title or settlement agent requests a payoff figure from your current servicer. That figure includes principal, interest to the payoff date and any fees.
5. Closing Disclosure and signing. You sign the new note and mortgage. The documents show the old payoff as a line item.
6. Right to cancel. Refinances on a primary home carry a three-business-day window, and Saturdays count while Sundays and legal holidays do not, according to the federal consumer-finance regulator’s cancellation guidance. Funds are generally disbursed after that window closes. If the lender fails to give required disclosures, the right can extend up to three years.
7. Disbursement. The payoff goes to the old lender first. Then the remaining cash goes to you.
8. Confirmation. The old servicer closes the account and the lien is released. Confirm both items yourself, using the checklist below.
One point surprises people: cancelling the new loan does not erase the old one.
How the New Loan Amount Is Built
The arithmetic is simple. The new loan covers the old payoff, the closing costs and prepaid items you choose to finance, and your cash. Cash to you is what is left after the payoff and costs.
| Line item | What it is |
|---|---|
| Old loan payoff | Balance plus accrued interest, paid to your servicer |
| Costs and prepaids | Third-party and lender charges, escrow deposits |
| Cash to you | New loan amount minus the two lines above |
| New loan amount | The sum of all three, within the LTV limit |
The limit is where the numbers get tight. Across the conventional programs Lendmire places files with, a cash-out on a one-unit principal residence reaches 80% of the appraised value. Two- to four-unit principal residences, second homes and investment property are written at up to 75%, so occupancy sets the leverage.
Texas works differently for homesteads. A cash-out on a Texas homestead, known as a Section 50(a)(6) loan, is capped at 80% of the home’s value by the state constitution.
There is also a wholesale lane that 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 its own seasoning. It is the exception, and it is not written in Texas. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
Before and After: What Carries Over and What Resets
The most overlooked part of a replacement loan is that nothing carries over automatically.
| Feature | Old loan | New loan |
|---|---|---|
| Rate | Whatever you locked originally | Set fresh for the whole balance |
| Term | Years remaining | Resets to the new term |
| Amortization | Mostly principal by now, perhaps | Starts over, interest-heavy early |
| Escrow | Existing account | New account; old balance refunded |
| Mortgage insurance | Existing policy or none | Required above 80% LTV on the agency path |
| Payments | One | Still one |
A few details from the table deserve attention.
Your old rate disappears. If your current loan carries a favorable rate, the new loan replaces it on every dollar, not only the cash. The CFPB’s guide for older homeowners warns that a larger loan can lengthen your payoff time and raise your payment.
The term clock restarts. Eight years into a thirty-year loan, a new thirty-year loan puts you back at year one. Lower payments may come from stretching the term, but more total interest usually follows.
Escrow resets. The old servicer refunds your escrow balance after payoff, and the new lender collects fresh deposits at closing. That refund arrives separately from your cash-out proceeds, so do not count on it to fund anything at the table.
Mortgage insurance may return. On the agency path, insurance is required above 80% LTV, with the no-MI wholesale lane described above as the exception. A cash-out on a primary home is written at up to 80%, so it sits right at that line, while a higher-leverage loan such as a rate-and-term refinance would carry the insurance. Once insurance is in place, the borrower can request cancellation at 80% of the original value with good payment history, no subordinate liens and no decline in value, and the servicer must end it automatically at 78%. Lendmire’s conventional program sheet lists typical annual premiums of 0.58% to 1.86% of the balance, which is a program-sheet range and not a quote. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Eligibility: The Gates That Block Equity-Rich Borrowers
Equity alone does not qualify you. Conventional cash-out files generally need:
- A seasoned first mortgage. The loan being paid off must be at least 12 months old, measured note date to note date.
- Time on title. At least one borrower should be on title for six months, with exceptions for delayed financing, inheritance and legal awards.
- Credit and ratios. The wholesale conventional programs start at a 620 decision score, with a total ratio ceiling of 50% on most automated findings. Manually underwritten loans sit at 36% or 45% with reserve and score factors from the Eligibility Matrix.
- Credit event waiting periods. These are agency rules: four years from a chapter 7 discharge, seven from a foreclosure, four from a short sale or deed-in-lieu, shorter with documented extenuating circumstances.
All of this is subject to lender guidelines and full file review, and nothing here is a commitment to lend.
Where the Standard Rule Breaks
A paid-off home still counts as cash-out. Freddie Mac’s Seller/Servicer Guide treats a new mortgage on a property the borrower previously owned free and clear as a cash-out refinance, however the money gets used. There is no old loan to replace, so the “replacement” language does not apply, but the cash-out rules do.
Existing second liens. Folding a second lien into the new loan is only a rate-and-term transaction when that second lien was used to buy the home. A HELOC drawn for a kitchen remodel makes the new loan a cash-out.
Buying out a co-owner. Paying out an ex-spouse or co-owner under a written agreement is treated as a limited cash-out at both agencies, not as a standard cash-out.
Energy and PACE obligations. When a PACE obligation holds first-lien priority and gets paid off, Freddie Mac applies cash-out or no-cash-out rules depending on the case. A borrower with enough equity who chooses not to pay one off may be treated as ineligible for a cash-out refinance.
- VA cash-out. VA says a cash-out refinance replaces your current loan with a new one and can take equity or move a non-VA loan into a VA-backed loan. VA’s lender materials define Type I, where the new loan does not exceed the payoff, and Type II, where it does. VA says the loan comes through a private lender, and a funding fee may apply.
- FHA cash-out. FHA cash-out is generally limited to owner-occupied principal residences, with its own payment-history rules.
- The streamlines are not cash-out. The FHA Streamline (an existing FHA loan, no appraisal, limited credit review, net tangible benefit) and the VA IRRRL (an existing VA loan, 0.5% funding fee unless exempt, no VA appraisal, net tangible benefit, seasoning of the later of 210 days and six payments) lower costs on an existing government loan. They do not pull equity out.
Large balances. Above the conforming limit, jumbo programs take over, with a 660 decision score, leverage up to 90%, loans to $5,000,000 and a 50% ratio ceiling on the fixed lanes. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
A Quick Comparison: Which Product Keeps Your First Mortgage?
| Product | First mortgage | Payments after | Equity access |
|---|---|---|---|
| Cash-out refinance | Replaced | One | Lump sum at closing |
| Rate-and-term refinance | Replaced | One | Incidental cash only |
| Home equity loan | Stays | Two | Lump sum, second lien |
| HELOC | Stays | Two | Revolving line, second lien |
When Replacing the Old Loan Does Not Pay
A cash-out is a hard sell when your existing loan is the best part of your finances. Run this break-even test before you commit.
1. Compare the whole loan, not the cash. Line up the old and new Loan Estimates on rate, term, payment and total interest across the same horizon, such as how long you expect to stay.
2. Add up the costs. The closing costs are paid on the entire new balance, so divide them by the monthly saving (if any) to see how long recovery takes.
3. Price the term reset. If the new term is longer than what remains on the old loan, ask what the extra years cost in interest.
4. Check the mortgage insurance line. Landing above 80% LTV can add a monthly cost the old loan did not have.
5. Ask what the cash replaces. Money used to pay off higher-cost debt can change the picture. Money spent on things that do not build value or cut costs usually does not.
The test cuts both ways. A borrower with a high-cost old loan and a big, necessary expense may come out ahead, while a borrower with a low-cost old loan and a small cash need usually does not.
One caution on consolidation: converting unsecured debt into mortgage debt does not erase it. It moves the balance onto a loan secured by your home, and the CFPB guide notes the home is the collateral.
Closing Checklist: Confirm the Old Loan Is Gone
- The Closing Disclosure shows the payoff to your old servicer as a line item.
- You receive a final payoff or zero-balance confirmation from the old servicer.
- A lien release or satisfaction is recorded, and a copy reaches you.
- Any automatic payments to the old loan are cancelled.
- Your old escrow refund arrives, and you have a record of the new escrow deposit.
- Your first new payment date and servicer are clearly stated in your closing papers.
Key Terms Defined
Payoff statement: The servicer’s written figure for what it takes to close the old loan on a specific date.
LTV (loan-to-value): The new loan amount divided by the appraised value of the home.
Seasoning: How long a loan or ownership must exist before it qualifies for a given refinance.
Lien release: The recorded document showing the old mortgage no longer encumbers the property.
Right of rescission: The three-business-day period in which you can cancel a refinance on your primary home.
Net tangible benefit: A government-streamline test showing the new loan improves the borrower’s position in a measurable way.
Frequently Asked Questions
Is a cash-out refinance a second mortgage?
No. It replaces your first mortgage, so no second lien or second payment is created. Home equity loans and HELOCs are the products that sit behind an existing mortgage. If you already have a second lien, it is either paid off in the new loan or stays in place under separate rules.
Do I keep my current rate on the part of the loan I am not borrowing against?
No. The new rate and term apply to the whole balance, including the part that merely repays the old loan. That is why a low rate on the existing loan weighs so heavily in the decision. Rate and term are set by the new loan’s terms, so compare the full Loan Estimate to your current statement.
How do I know how much cash I can get?
Take the maximum loan allowed by LTV on your appraised value, then subtract the old payoff and the costs you finance. On a conventional one-unit primary residence the limit is 80% LTV, subject to lender guidelines. The wholesale no-MI lane reaches 89.99% for qualifying primary-residence files.
Does my current loan have to be a certain age?
For conventional cash-out, the mortgage being paid off generally must be at least 12 months old, note date to note date, and a borrower must have been on title for six months, with exceptions. A home owned free and clear is still treated as a cash-out under Freddie Mac’s rules.
Can I use a cash-out refinance if my current loan is FHA or VA?
Yes, though the program changes. A conventional, FHA or VA cash-out can each replace a government loan, with different leverage, fee and occupancy rules. The FHA Streamline and VA IRRRL are not cash-out products, so they are the wrong tool when you want equity.
Where This Leaves the Decision
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
2. CFPB – Using home equity to meet financial needs
3. Freddie Mac Seller/Servicer Guide §4301.5
4. Freddie Mac Seller/Servicer Guide §4301.8
5. VA
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 With a Custom Loan Term Length · How a Market Data Report Works for a VRBO Cash-Out Refinance · Best Cash-Out Refinance Program for the Maximum Loan Amount
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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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.