The Quick Read: A rate-and-term refinance swaps your current mortgage for a new one with a different rate or term, and you take out little or no cash. A cash-out refinance swaps it for a larger loan and hands you the difference. Rate-and-term fits you if you want to change the loan. Cash-out fits you if you want to tap equity. Cash-out is capped at lower leverage, and it asks more of you on seasoning and reserves, subject to lender guidelines and full file review.
The choice usually comes down to one question: do you need money, or do you need a better loan? If the answer is “a better loan,” rate-and-term is usually the cleaner path. If the answer is “money for a specific purpose,” cash-out is the tool, and you accept stricter rules to get 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.
One vocabulary note. The agencies don’t use the phrase “rate-and-term.” Fannie Mae calls it a “limited cash-out refinance.” Your loan officer may use either term, and they mean the same thing here.
Side-by-Side
| Factor | Rate-and-Term | Cash-Out |
|---|---|---|
| Purpose | Change rate or term | Take equity as cash |
| Max leverage, one-unit primary home | 95% LTV | 80% LTV |
| Max leverage, 2-4 units, second home, investment | Varies by occupancy | 75% LTV |
| Cash to you at closing | Incidental only | Any amount within the limit |
| Seasoning | Fewer hurdles | Existing loan 12 months old; 6 months on title |
| Mortgage insurance | Required above 80% LTV | Required above 80%, except one wholesale lane |
| Credit floor (wholesale conventional) | Starts at 620 decision score | Starts at 620; the no-MI lane needs 680 |
| Documentation | Standard file review | Standard review, plus reserves on higher-ratio files |
LTV means loan-to-value: the new loan divided by what the home is worth. A lower cap on cash-out means you need more equity left in the house afterward.
How Each One Works
Rate-and-term. The new loan pays off your existing first mortgage and the closing costs. It can also pay off a second lien that was used to buy the home. You may get a small amount of cash back, but only incidental. Fannie Mae’s limit is the lesser of 2% of the new loan amount or $2,000. Freddie Mac’s limit is the greater of 1% of the new loan amount or $2,000. Fannie Mae’s Selling Guide on limited cash-out refinances also bars a home that is listed for sale.
Across the wholesale programs we place files with, rate-and-term reaches 95% LTV on a one-unit primary residence. It can reach 97% where the existing loan is agency-owned and a first-time-buyer program allows it. Going above 95% adds paperwork, including proof that the agency owns or securitizes your current loan. Your automated underwriting finding can sometimes serve as that proof. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
Cash-out. The new loan pays off your mortgage and puts the rest in your hands. Because you are borrowing against equity, lenders treat it as higher risk. That is why leverage caps drop and seasoning rules appear.
Two clocks matter. The mortgage you are paying off must be at least 12 months old, measured from note date to note date. And at least one borrower must have been on title for six months, with exceptions for delayed financing, inheritance and legal awards. Fannie Mae’s announcement SEL-2023-01 sets both clocks out.
Cash-out costs more than rate-and-term. Fannie Mae applies pricing adjustments by LTV and credit score, and Freddie Mac applies a credit fee. We won’t quote figures here. Your Loan Estimate shows the real terms.
When Rate-and-Term Is the Better Fit
Rate-and-term wins when the loan itself is the problem. A few clear cases:
- You want a different term. Moving from a 30-year to a 15-year loan, or the reverse, is a classic rate-and-term goal.
- You want to drop an adjustable rate for a fixed one. The balance stays roughly the same, and the payment becomes predictable.
- You are thin on equity. At 95% LTV, you can refinance with far less equity than cash-out allows.
- You want to remove mortgage insurance. If your value has grown, a new loan at or below 80% LTV can end it.
- You buy out a co-owner. Under a written agreement, this counts as limited cash-out at both agencies. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
Government loans have their own streamlines. An FHA Streamline refinances an existing FHA loan with limited credit review and a net tangible benefit, and typically no appraisal. HUD’s streamline page notes that no more than $500 in cash can come out, and “streamline” describes the paperwork, not the costs. A VA IRRRL does the same for an existing VA loan, with a 0.5% funding fee unless you are exempt and no VA appraisal. The seasoning rule is the later of 210 days and six payments. The VA’s own home loan overview confirms the IRRRL works only on an existing VA loan and needs no new Certificate of Eligibility.
Above the conforming loan limit, jumbo lanes take over. They start at a 660 decision score, reach 90% leverage, and go up to $5,000,000, with a 50% ratio ceiling on the fixed lanes. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
Mortgage insurance applies above 80% LTV on the agency path, except for the wholesale no-MI cash-out lane, which reaches 89.99% LTV and is covered later in this article. You can ask to cancel it at 80% of original value with good payment history. The servicer must end it at 78%, under the Homeowners Protection Act. Typical annual premiums run from 0.58% to 1.86% of the balance, according to Lendmire’s conventional program sheet. That is the sheet’s range, not a quote. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
When Cash-Out Is the Better Fit
Cash-out wins when the money matters more than the loan terms. People commonly use it for:
- Home renovations or repairs
- Paying off higher-cost debt
- Student loan payoff, which Fannie Mae allows as a cash-out option at standard cash-out LTV
- Buying out a co-owner when the deal doesn’t fit limited cash-out
- Funding a large one-time expense
The tradeoff is real. You raise your balance, and your payment may rise with it. You also give up equity you may want later. Cash-out is a good fit when the use of money beats the cost of borrowing it. It is a poor fit when the cash covers ordinary spending.
Leverage depends on occupancy. Conventional cash-out reaches 80% LTV on a one-unit primary residence. It reaches 75% on two- to four-unit primary residences, second homes and investment property. A cash-out can be written on any of those, and occupancy sets the cap.
One wholesale lane stretches further. It reaches 89.99% LTV with no mortgage insurance. It needs a 680 score, a 50% ratio, a 30-year fixed rate, a primary residence and a conforming balance. It carries its own six months of seasoning. This lane is the one exception to the mortgage-insurance rule above, and it is not written in Texas. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
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.
One more wrinkle: paying off a home equity line or second lien that did not fund your purchase generally makes the loan cash-out. People often assume it’s rate-and-term.
How to Qualify for Each
Lenders look at the same core items for both. The thresholds differ.
Credit. Wholesale conventional programs start at a 620 decision score. Adjustable-rate loans under manual underwriting start at 640. The no-MI cash-out lane needs 680. Some lenders set a higher floor than the agencies, so a decline at one place isn’t the end of the road.
Debt-to-income ratio. This compares your monthly debts to your gross monthly income. The automated finding governs most files, with a total ratio ceiling of 50%. Manually underwritten loans use 36% or 45%, depending on reserves and score factors in the Fannie Mae Eligibility Matrix. That matrix also shows that cash-out files with a ratio above 45% trigger minimum reserves. Reserves are the savings left after closing.
Equity. This is where the two diverge most. Rate-and-term can work with as little as 5% equity on a primary home. Cash-out needs at least 20% left over on a one-unit primary home, and 25% on the other occupancies.
Credit events. Agency waiting periods apply after a bankruptcy, foreclosure or short sale. They are four years from a chapter 7 discharge, seven from a foreclosure, and four from a short sale or deed-in-lieu. They run shorter with documented extenuating circumstances.
Property. Single-width manufactured homes are eligible for limited cash-out but not cash-out, per the Fannie Mae matrix. A home listed for sale fails the limited cash-out test.
How to Apply, Step by Step
The path is the same for both until the appraisal and underwriting stages. Here is what changes.
1. Name your goal. Write down whether you want a new rate, a new term, or cash. The goal decides everything after.
2. Check your loan type and timing. Is your current loan conventional, FHA or VA? Is it at least 12 months old? Have you been on title six months? For cash-out, both matter.
3. Gather documents. Expect recent pay stubs, traditional personal-income documentation, bank statements, your current mortgage statement, and proof of homeowners insurance. Self-employed borrowers add business documents.
4. Get a Loan Estimate. A broker or lender gives you this standard form after you apply. Compare it line by line across offers, not just the headline terms.
5. Appraisal. Value sets your LTV, which sets how much cash is possible. Some files qualify for an appraisal waiver, but no one can promise one. FHA and VA streamlines often skip it.
6. Underwriting. The lender reviews credit, income, ratios and reserves. Cash-out gets a closer look at reserves.
7. Closing Disclosure and signing. You receive this form before closing. On a refinance of your primary home, you then get three business days after signing to rescind, according to the CFPB.
A mixed goal is common. Say you want a fixed rate and a little cash for a repair. Limited cash-out allows only incidental cash. Anything more pushes you into cash-out, with its lower leverage and extra seasoning. Rolling closing costs into the loan can also blur the line, so ask how your lender classifies the file before you apply.
Worked Comparison
Picture a homeowner with a one-unit primary residence and a loan well under 80% of the home’s value. They want a different term and nothing else. Rate-and-term fits, and the new loan stays near the old balance.
Now picture the same homeowner who also wants cash for a major renovation. They can borrow up to 80% of the home’s value in total, and the new loan must also pay off the old one. The cash they receive is whatever is left between the payoff and that cap. Whatever the first loan still owes shrinks that cushion.
Run your own version on your own numbers before applying. The spread between the loan you have and the cap is your room.
If You’re Denied or Fall Short
- Equity falls short. Wait for more appreciation or pay the balance down. Or switch to rate-and-term, which allows higher leverage.
- Score is under the floor. Pay down card balances and recheck. A different lender may set a lower floor, so one decline doesn’t end your options.
- Ratio is too high. Pay off a small debt, add a co-borrower, or request less cash.
- Seasoning isn’t met. Wait out the 12-month and six-month clocks, or ask whether an exception applies.
- Reserves are thin. Build savings or lower the ratio so the file needs fewer of them.
The CFPB’s refinance handout also reminds you to check for a prepayment penalty on your current loan and to weigh how long savings take to cover the cost of the new one.
Key Terms Defined
LTV (loan-to-value): The new loan amount divided by your home’s appraised value.
Seasoning: The minimum time you have held the loan or the title before a lender will allow a cash-out.
Limited cash-out: The agencies’ name for a rate-and-term refinance, with only incidental cash back.
Reserves: Savings left over after closing, counted in months of payments.
Net tangible benefit: A measurable gain to you, required on FHA and VA streamlines.
Related Reading
Lendmire’s cash-out refinance programs page covers the programs and the equity each one reaches.
Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
The Verdict
Pick rate-and-term when the loan is the problem and you don’t need money. It allows higher leverage, has lighter seasoning, and costs less. Pick cash-out when the money has a clear job that is worth the higher cost and the lower leverage cap. If you are on the fence, ask for both options on the same Loan Estimate and compare the full terms. Eligibility review depends on lender guidelines, your credit, your property and full file review, and none of this is a commitment to lend.
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.
Frequently Asked Questions
Can I get cash back on a rate-and-term refinance?
Only a small, incidental amount. Anything beyond that moves the loan into cash-out, with its lower leverage cap and extra seasoning.
How long do I have to own my home before a cash-out refinance?
At least one borrower generally must be on title for six months, and the mortgage being paid off must be 12 months old. Exceptions exist for delayed financing, inheritance and legal awards. A wholesale no-MI cash-out lane carries its own six months of seasoning.
Does cash-out need better credit than rate-and-term?
Not always at the baseline. Wholesale conventional programs start at a 620 decision score for both. The no-MI cash-out lane requires 680. Cash-out files with a higher ratio also face reserve requirements, so the file overall is held to a tighter standard. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Can I refinance if I have an FHA or VA loan?
Yes, with streamlines built for each. An FHA Streamline needs an existing FHA loan and a net tangible benefit. A VA IRRRL needs an existing VA loan. Both limit cash back, and VA bars it. A veteran with a non-VA loan would look at a VA cash-out instead, subject to lender guidelines.
What if my property is a second home or rental?
Occupancy sets the leverage. Conventional cash-out on a second home or investment property reaches 75% LTV, compared with 80% on a one-unit primary residence. Eligibility is subject to lender guidelines and full file review.
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 broker that arranges FHA, VA, conventional and jumbo home purchase and refinance financing in 16 states through wholesale lenders. Every option is subject to the lender’s guidelines and full underwriting. 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. Fannie Mae Announcement SEL-2023-01
3. HUD, FHA Streamline Refinance
5. Fannie Mae Eligibility Matrix
6. CFPB
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 the Cancellation Period Works on a Cash-Out Refinance · How a Cash-Out Refinance Works When You Buy Before You Sell · How a No-Cost Cash-Out Refinance Works
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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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.