The Quick Read: A lender treats a shared equity agreement as a recorded claim on your title that must either be paid off or placed behind the new first mortgage. Paying it off with new loan proceeds generally means the file runs as a full cash-out refinance, not a rate-and-term. That puts it under the cash-out leverage ceiling and full credit and income review. Whether a given contract counts as a “subordinate mortgage lien” is the lender’s reading, because no agency rule names these contracts.
“Shared equity agreement” here means a provider-funded home equity contract, also sold as a home equity agreement (HEA) or home equity investment (HEI). A company advances cash today in exchange for a share of the home’s future value. That is different from a co-ownership plan at purchase, where two people buy a home together. This article covers the first kind.
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: 7.32% as of October 22, 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.
Everything below is the lender’s reading of general lien rules, based on how these files are placed through wholesale lenders. It is not a published agency ruling, and each file is subject to lender guidelines and full review.
What Is a Shared Equity Agreement, Really?
It is an equity contract, not a conventional loan, but it usually leaves a lien on your title. The federal consumer-finance regulator’s market overview of home equity contracts describes them as a way for companies to gain exposure to home price appreciation. You still pay maintenance, insurance, taxes, HOA dues and selling costs. The company does not.
What you owe at the end is not a fixed balance. Repayment rises with appreciation, subject to any cap. Some providers apply their multiple to the total home value. Others apply it to the change in value. That difference makes offers hard to compare and makes the payoff a moving number.
Don’t confuse this with a shared appreciation mortgage. That older product is an actual loan, sometimes offered as a loan modification, where the lender takes a share of appreciation. Different instrument, different treatment.
Key Terms Defined
Subordination: An agreement by a lienholder to move behind a new loan, so the new loan holds first position.
Subordinate lien: A claim recorded behind the first mortgage in priority.
Purchase-money lien: A lien that was used to buy the property in the first place.
Limited cash-out refinance: A refinance that pays off the old first mortgage, closing costs and purchase-money liens, with only incidental cash back. Most people call it a rate-and-term refinance.
Cash-out refinance: A refinance with no restriction on how you use the proceeds, held to a lower leverage ceiling.
Combined loan-to-value (CLTV): All liens against the home, added together and divided by its appraised value.
How Does the Lender See the Agreement?
The lender sees a lien it has to deal with. It does not matter that the contract isn’t marketed as debt. A recorded claim sits on title, and a new first mortgage needs first position. So the underwriter’s first question is simple: pay it off or put it behind us?
In practice, the file starts with documents:
- The full agreement, not a summary page.
- Any recorded memorandum or lien instrument.
- A current payoff statement from the provider.
- The title commitment showing what is actually recorded.
Across the wholesale programs placed through Lendmire, the payoff statement is the document that moves files. A contract can read clearly and still produce a payoff nobody expected once the home is appraised. Ask the provider for a payoff estimate before you apply, not after.
Two Paths: Keep the Agreement or Pay It Off
You have two forks. They behave very differently.
Fork A: keep it and resubordinate. The provider signs an agreement placing its lien behind the new first mortgage. The same concept appears throughout agency rules. Fannie Mae’s limited cash-out guide says existing subordinate liens that stay in place must be clearly subordinate to the new mortgage. VA requires the same for its loans. Here’s the catch: many of these contracts restrict or prohibit subordination when you take extra cash out. Practitioners see this often. Provider consent is a gating item, not a formality.
Fork B: pay it off with the new loan. The title company sends the payoff at closing and the provider releases its claim. Fannie Mae’s cash-out refinance rules allow paying off subordinate liens of any age, and the 12-month seasoning test applies to the first mortgage being paid off, not to those subordinate liens. Whether the lender treats the provider’s lien as a “subordinate mortgage lien” is a judgment call, since no rule names these contracts. That part is inference. It is the usual outcome, not a guarantee.
| Path | What happens to the lien | Provider consent | Typically fits when |
|---|---|---|---|
| Resubordinate | Stays, moves behind new loan | Required | Rate-and-term, no extra cash |
| Pay off at closing | Released after payoff | Payoff letter only | Cash-out with enough equity |
| Don’t refinance | Stays as is | None | Payoff costs exceed benefit |
Subordination on a cash-out is rarely workable, which is why most cash-out files head down Fork B.
Why It Usually Runs as a Cash-Out
A limited cash-out refinance can only pay off the old first mortgage, closing costs and a purchase-money second lien, with only incidental cash back. An equity contract is not a purchase-money lien. It was funded against equity you already had. Folding its payoff into the new loan therefore pushes the deal out of the limited category.
That is the lender’s reading, drawn from the lien rules above, not an agency statement. Still, it is the reading you should plan around. A borrower hoping for rate-and-term treatment, with its 95% LTV on a one-unit principal residence, should expect cash-out treatment instead. Conventional cash-out tops out at 80% LTV on a one-unit principal residence. On two- to four-unit principal residences, second homes and investment property it is 75%. Occupancy decides the leverage. Terms vary by lender guidelines, property type, leverage, credit profile, and full file review.
The cost of that shift is real. Cash-out carries a lower ceiling than rate-and-term, and the FHFA Office of Inspector General has noted that cash-out loans carry higher default risk than purchase loans, which is why they are limited and priced more tightly.
Worked Example: Does the Payoff Fit Under the Ceiling?
This is illustrative only, in percentages, not a quote. Say you have a one-unit principal residence and want to pay off your first mortgage and an equity contract with a conventional cash-out.
The new loan must cover three things: the old first mortgage, the provider’s payoff and closing costs. Add them up and divide by the appraised value. If that comes to 80% or less, the structure fits the conventional cash-out ceiling. If it is above 80%, it doesn’t, and you need a different plan.
Here is where the swing factor appears. The provider’s payoff depends on the home’s value at payoff. A higher appraisal raises the value you can borrow against, but it can also raise what you owe the provider, particularly where the contract shares in total value. Say the old mortgage is 45% of value and the payoff lands at 20% of value. With closing costs around 2% to 3% of value (a typical range, not a quote), the total reaches about 67% to 68%. That fits. Now suppose the payoff lands at 40% of value. The total moves past 85%, over the ceiling, and no cash comes out either.
So a larger payoff does two things at once. It uses up the equity you wanted to borrow, and it can block the loan entirely. A wholesale lane reaching 89.99% LTV with no mortgage insurance exists for strong borrowers, but it requires a 680 score, a 50% ratio, a thirty-year fixed, a primary residence, a conforming balance and its own six months of seasoning. It is the exception, and a file with an equity contract is not the usual candidate. Exact terms depend on the lender’s guidelines, property type, leverage, and a full review of the borrower’s file.
Closing-Day Money Flow
At closing, the new loan’s proceeds are spent in a set order. Nobody improvises it.
| Who gets paid | From what | Why |
|---|---|---|
| Old first mortgage servicer | New loan proceeds | Release the prior first lien |
| Equity contract provider | New loan proceeds | Settle the contract, release the claim |
| Title, appraisal, other costs | Proceeds or financed | Closing costs |
| Borrower | Remainder, if any | Cash out |
A conventional cash-out lets you finance closing costs into the loan. Then the title company pays the provider and gets the lien release recorded. Don’t treat the release as a detail. Until it is recorded, the title isn’t clean.
Step by Step: How the deal works
1. Get the payoff estimate from the provider, along with the contract and recorded instrument.
2. Choose the fork. Pay off or resubordinate. On a cash-out, plan for payoff.
3. Apply and classify. The lender runs it as a cash-out if the payoff isn’t purchase-money or cash comes back.
4. Order the appraisal. Value drives both your leverage and, often, the payoff.
5. Review title. The commitment confirms what is recorded.
6. Underwrite the borrower. A conventional cash-out gets full credit and income review. Wholesale conventional programs generally start at a 620 decision score, and the automated finding governs most files, with a total ratio ceiling of 50%.
7. Close and record. Title pays the old first and the provider, and records the release.
TRID applies, so you will receive a Loan Estimate and a Closing Disclosure. Expect coordination with the provider to add time. How much depends on the provider, so don’t assume a schedule.
Where the Rule Breaks: Edge Cases
Limited cash-out can’t absorb the payoff. Only purchase-money subordinate liens can be paid off in that structure. Leaving the equity contract in place and resubordinating is a different path from paying it off.
VA IRRRL. The VA’s IRRRL page says no loan other than the existing VA loan may be paid from the proceeds. A second-mortgage holder must subordinate so the new VA loan is a first lien. A payoff can’t ride along in an IRRRL. A VA cash-out is the route for paying off liens of other types, with first-lien position and subordination agreements in the file.
FHA Streamline. Cash in excess of $500 can’t be taken out, and closing costs can’t be added to the loan amount. A payoff doesn’t fit. If the contract stays, resubordination is needed.
The provider won’t subordinate. The refinance can’t proceed in that form. It stalls until the lien is resolved, so the realistic options are payoff or waiting.
Second homes and investment property. Those carry lower LTV limits, as the occupancy figures above show. Occupancy decides the leverage, and the payoff then has less room.
Co-ownership plans. A purchase-time plan where an owner-occupant and an individual investor buy together is governed by different rules. It isn’t an equity contract and doesn’t follow this analysis.
Divorce or co-owner buyouts. Those are a parallel situation with their own treatment, not an equity contract.
State law. Several states have begun regulating these contracts. Rules vary and are changing, so ask the provider what applies in your state.
When the Numbers Don’t Work
Three problems come up most.
The payoff is too large. The combined loan exceeds the ceiling. Options include waiting, paying part of the contract from savings, or choosing another route. A partial buyout depends entirely on whether the contract allows one.
The provider won’t cooperate. If it refuses subordination and you want cash out, payoff is the only path.
Equity runs out. If paying the provider leaves little or no cash, ask whether the refinance still helps. Replacing a contract with no monthly payment by a larger first mortgage adds a monthly obligation. The “no payment” feature disappears.
Alternatives include selling, a home equity loan or line of credit (though those can face the same lien-position issues), or leaving things alone. An equity contract also doesn’t need income to obtain, but the refinance that pays it off requires full underwriting. Plan for that mismatch.
What Should You Do First?
Get the payoff estimate and read the contract’s subordination language before you talk to any lender. Those two pieces decide almost everything. For leverage, see Lendmire’s piece How Much Equity a Conventional Lender Requires for a Cash-Out Refinance. If you are comparing programs, Lendmire’s cash-out refinance programs page lays out the structures.
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
Will a lender make a cash-out loan while I have an active shared equity agreement?
Usually yes, if the provider’s lien is either paid off at closing or resubordinated and the combined loan fits under the cash-out ceiling. Most conventional cash-out files pay the provider off. Approval depends on the contract, the appraisal, your credit and income, and lender guidelines.
Does paying off the agreement count as cash-out?
Generally yes. A limited cash-out can pay off only purchase-money subordinate liens, and an equity contract wasn’t used to buy the home. That is the lender’s reading of the rules, not a published agency ruling, so a particular lender may see it differently.
Do I need the provider’s consent?
If the contract stays in place, yes, because it must move behind the new first mortgage. If you pay it off, you need a payoff statement and a recorded release, not subordination. Many contracts restrict subordination when cash comes out, so ask early.
What if my home has appreciated?
Your payoff may rise with it, depending on whether the contract shares in total value or just the change. A higher appraisal also raises the amount you can borrow against. The two effects can offset or collide, which is why the payoff estimate matters before you apply.
Can I use an FHA Streamline or VA IRRRL to settle the agreement?
No. Both limit cash and which liens can be paid from proceeds, so a payoff doesn’t fit. A VA cash-out refinance is the government route that can pay off other liens, and a conventional cash-out is the other common one.
For your own numbers, request a scenario review with Lendmire.
For current guidelines and terms, see Lendmire’s refinance programs page.
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.
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References
1. CFPB, Issue Spotlight: Home Equity Contracts: Market Overview
2. Fannie Mae Selling Guide B2-1.3-02, Limited Cash-Out Refinance Transactions
3. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
4. FHFA Office of Inspector General
5. VA, Interest Rate Reduction Refinance Loan
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 to Refinance Out of an ARM Payment Higher Than It Should Be · How to Lower Your Payment in Retirement With a Refinance · How to Refinance a Second Home From an ARM to a Fixed
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
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.