The Quick Read: A VA cash-out refinance fits a veteran who wants one new first loan that pays off the second. Keeping the private second fits a veteran whose first loan is already good and whose second holder will agree to stay behind a new first lien. The choice turns on what the second costs you, what the holder will accept, and how much equity the new loan can reach. Everything below is subject to lender guidelines and full file review.
The Honest Answer First
Pick the cash-out if the second is expensive, short-term, or variable, or if the holder will not cooperate. Keep the second if it is cheap, fixed, and your first loan is staying exactly as it is.
VA cash-out estimate
Seeded with an example value, a typical balance, and a round cash request at the first-use fee; change any field.
Editable benchmark: 7.18% as of November 5, 2026 · Freddie Mac 30-year average via FRED®. A conventional market reference, not a VA cash-out refinance quote.
Illustrative starting assumptions: a $350,000 home value, a $193,000 current balance, the full-value VA cap with the first-use funding fee financed, 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 VA cash-out refinance quote; a VA loan is priced by the lender at lock. The total loan, funding fee included, is capped at the program leverage on the reasonable value; the fee follows the tier chosen. The cash available is what the cap allows less the balances paid off and the fee, before closing costs, which are not included. The HELOC line is the line program’s combined loan-to-value ceiling applied to the same value and balance. Taxes and insurance are editable estimates. The debt-to-income figure is a guideline; residual income decides a VA file. Licensed in sixteen states for consumer mortgages.
There is one wrinkle people miss. A new VA refinance that leaves the second in place requires the second-lien holder to agree in writing to sit behind the new loan. That is called subordination. The holder decides, not VA. A cash-out avoids that problem because it can pay the second off.
Two kinds of veterans land here. One has a HELOC or private second taken out years ago and wants to simplify. The other is moving from a non-VA first loan into VA and has a second attached. Both face the same fork.
Side-by-Side
| Factor | VA Cash-Out (pays off second) | Keep the Private Second |
|---|---|---|
| Leverage | Up to 100% of appraised value, financed fee included | Depends on the second holder and the new first lender |
| Credit floor | Wholesale programs start at a 580 decision score | Set by the second holder |
| Mortgage insurance | None | None on the VA first |
| Documentation | Full underwriting, VA appraisal, residual income | Full underwriting on any new first, plus a subordination agreement |
| Funding fee | Applies unless exempt | Applies only if you refinance the first |
| Loans after closing | One | Two |
Two cells deserve a note. A kept second still counts against your equity and your budget. And how a retained second is counted toward the 100% ceiling varies by lender and investor, so ask before assuming.
What a VA Cash-Out Actually Does
Think of it as replacing your whole mortgage stack with one new VA-backed first loan. Per VA’s cash-out refinance page, you get it through a private lender, you need a Certificate of Eligibility, and a funding fee may apply.
On the programs we place files with, the loan can reach 100% of the appraised value, financed funding fee included. It carries no mortgage insurance. It also refinances any loan type into VA, including a conventional first with mortgage insurance you would like to drop.
Here is the part that matters for this comparison. A cash-out can pay off liens of any type, and a second mortgage is the standard example. An IRRRL, VA’s streamlined rate-reduction refinance, cannot. If you want to understand how those two differ for a veteran who needs cash, Lendmire’s piece VA IRRRL vs. VA Cash-Out Refinance for a Veteran Who Needs Cash walks through it.
The program is covered in more detail on Lendmire’s VA cash-out refinance program page.
What It Costs and What Tests Apply
The funding fee on a cash-out is 2.15% for first use and 3.3% for later use. Per VA Circular 26-23-06, Exhibit B, the reduced fees tied to a down payment do not apply to refinances. Putting money in does not lower the cash-out fee. Veterans receiving compensation for a service-connected disability, and the other exempt groups, do not pay it.
The loan also has to pass a net tangible benefit test. Under 38 CFR 36.4306, the new loan must give you a real, listed benefit, such as dropping monthly mortgage insurance or moving from an adjustable to a fixed loan. The regulation lists the qualifying benefits, and at least one must be met. The half-percent rate-reduction test and the fee-recoupment test belong to the IRRRL. They do not govern the cash-out.
Seasoning applies too. That is the waiting period after your current loan begins. On these programs it is the later of 210 days from the first payment and the sixth payment.
Underwriting is full. Residual income is the controlling test, meaning the money left each month after your obligations and living costs. The 41% debt-to-income figure is a guideline, not a cap. A ratio above it needs residual income well above the table.
When a VA Cash-Out Is the Better Fit
The cash-out wins in several situations.
- The second is costly or unpredictable. Many private seconds and HELOCs carry variable terms or shorter horizons. Folding one into a fixed first replaces moving parts with one loan.
- The holder will not subordinate. A slow or unresponsive holder can stall a refinance that keeps the second. Paying the second off removes that dependency, and no consent is needed.
- You are moving from a non-VA first. Refinancing a conventional or FHA first into VA is itself a cash-out, even if you take no cash. Keeping a second through that move would still need the holder’s written subordination, so if a second comes along, paying it off in the same transaction is the clean route.
- You want to drop mortgage insurance. Eliminating monthly mortgage insurance counts as one of VA’s listed net tangible benefits.
- You want one payment. One new first lien means one monthly obligation instead of two.
Picture a veteran with a conventional first carrying mortgage insurance and a HELOC drawn for a renovation. A cash-out can retire both, put them into a VA loan with no mortgage insurance, and leave a single loan. Whether the numbers favor it depends on the home’s appraised value, the combined balances, and the funding fee.
The tradeoff is real. Your first-loan terms reset. You pay full closing costs, a VA appraisal, and the funding fee. And as the Federal Reserve notes in its refinancing guidance, when you take out equity you own less of your home. Check the old loan for a prepayment penalty too.
When Keeping the Private Second Is the Better Fit
Keeping the second wins when you are not really trying to restructure.
- The second is cheap and fixed. If its terms are good, paying it off just to simplify may cost more than it saves.
- You are not refinancing the first. If you leave the first loan alone, the second simply stays behind it. No subordination is needed because nothing is changing in lien order.
- The cost of extracting cash is high. A January 2025 CFPB study of cash-out refinances found that paying off other debt with home equity can make financial sense if the cost of extracting the cash is low enough. The flip side holds. When the cost is high, it may not.
- You already have a first loan worth preserving. A VA first with terms you like may be better left alone.
The catch is that two loans mean two payments, and the second’s terms stay as they are. If you do refinance the first and keep the second, you need the holder’s written agreement. VA sets the lien-position requirement. It does not approve the subordination, and a holder can say no.
If the holder refuses, your options narrow. You can pay the second off through a cash-out, wait, or ask the holder to restructure. Plan for that before you apply.
A Quick Decision Guide
| Your situation | Likely lean |
|---|---|
| Second is variable or short-term | Cash-out |
| Holder is slow or unresponsive | Cash-out |
| Moving a non-VA first into VA | Cash-out |
| Second is cheap and fixed, first unchanged | Keep the second |
| Wanting a smaller first-loan reset | Keep the second |
| Equity is thin after fees | Keep the second, or wait |
That table is a starting point, not a verdict. Equity decides a lot. Reachable cash is limited by the appraised value, the loan ceiling, the payoff amounts, and costs. Equity on paper is not cash in hand.
Key Terms Defined
Private second: A loan secured by your home that sits behind your first mortgage, often a HELOC or a private lender’s loan.
Subordination: The second-lien holder’s written agreement to stay behind a new first loan.
Net tangible benefit: A concrete, listed advantage the new VA loan must give you.
Residual income: The money left each month after major obligations and living costs, which is VA’s controlling underwriting test.
Certificate of Eligibility (COE): The VA document that confirms you qualify for the benefit.
Verdict
Neither path wins by default. If the second is costly, variable, or stubborn to subordinate, the cash-out gives you one clean loan and a clear path. If the second is cheap, fixed, and you are leaving the first alone, keeping it can save you real money and a reset.
The hinge is the holder. A second-lien holder who will not cooperate turns a keep-the-second plan into a cash-out whether you like it or not. Ask early, and have the number for your first and second balances in hand before you talk to anyone.
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. Consumer mortgage lending is available in Alabama, California, Colorado, Florida, Georgia, Indiana, Michigan, Montana, New Mexico, North Carolina, Ohio, Pennsylvania, Tennessee, Texas, Virginia, and Washington, subject to lender guidelines and full file review.
Frequently Asked Questions
Can a VA cash-out refinance pay off my private second?
Yes. A cash-out can pay off liens of any type, and a second mortgage is the usual example. One new first lien replaces both loans, and no lien-holder consent is needed.
Does a VA refinance wipe out my second automatically?
No. The second must either be paid off in the cash-out or stay in place behind the new first loan. If it stays, the holder must agree in writing to subordinate. Nothing happens to it by default.
Does VA approve the subordination?
No. VA requires the new loan to hold first position, but the second-lien holder decides whether to agree. That is why asking early matters. A holder who refuses can change your whole plan.
Do I pay a funding fee if I only pay off the second?
Generally yes, because the transaction is a cash-out refinance, and the funding fee applies unless you are exempt. The fee is 2.15% for first use and 3.3% for later use, and it can be financed. Veterans receiving compensation for a service-connected disability are among those exempt.
Is a cash-out for a primary residence only?
Yes, the VA cash-out is for the home you live in. If you are thinking about a rental or second home, that is a different loan conversation, not this one.
For your own numbers, request a scenario review with Lendmire.
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. VA.gov, Cash-out refinance loan
2. VA Circular 26-23-06, Exhibit B
4. Federal Reserve, Refinancings
5. CFPB, Cash-out refinances and paydown behavior of non-mortgage debt balances
This article is part of Lendmire’s VA cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How to Plan and Use a VA Cash-Out Refinance to Go Fixed · How to Qualify and Apply for a VA Cash-Out Refinance as Active-Duty Military or a Veteran · VA Cash-Out vs Entitlement Restoration for a Veteran With a VA Loan
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.