The Quick Read: Lenders treat your existing loan payoff as the first line item in the new loan, not an afterthought. They start with the payoff, add the allowed closing costs, then add any cash to you. Then they test that total against a loan-to-value cap on the appraised value. The payoff is a servicer-issued figure on the funding date, and it is rarely the same as the balance on your statement.
What “Sizing” Actually Means
Sizing is the lender’s process of deciding how big the new loan can be. It runs in one direction. The value of the home sets a ceiling. Everything that must be paid or financed comes out of that ceiling. Whatever room is left is the cash you can take.
Loan-to-value, or LTV, is the new loan amount divided by the appraised value. Across the conventional programs we place files with, the cash-out cap is 80% LTV on a one-unit principal residence. It drops to 75% on two- to four-unit principal residences and on second homes. A wholesale lane reaches 89.99% LTV with no mortgage insurance, at a 680 score and a 50% ratio, on a thirty-year fixed, primary residence, conforming balance. It carries its own six months of seasoning. All of this is subject to lender guidelines and full file review, and none of it is a commitment to lend.
Here is the part most calculators skip. They subtract “your balance.” Lenders subtract your payoff. Those are different numbers, and the gap comes straight out of your cash.
The Sizing Sequence, Step by Step
Fannie Mae’s rules show the order. Per the Fannie Mae Selling Guide, acceptable uses of a cash-out loan include paying off the existing first mortgage, provided it is at least 12 months old. They also include financing closing costs, points and prepaid items. Real estate taxes can be included in the new loan amount.
In practice, a file moves like this:
1. Title and seasoning check. The lender confirms who owns the home and for how long. For a conventional cash-out, the first mortgage being paid off must be at least 12 months old, measured note date to note date. A borrower must have been on title for 6 months. Delayed financing, inheritance and legal-award exceptions exist.
2. Payoff statement. The lender or settlement agent orders a current payoff from your servicer.
3. Classification. The lender decides whether this is a limited (rate-and-term) refinance or a full cash-out. What gets paid off, and how much cash comes back, decides it.
4. Build the new loan. Payoff of the first mortgage, plus any other required payoffs, plus financed costs, points and prepaids, plus cash to you.
5. Appraisal and LTV test. The total is tested against the cap on the appraised value. Any lien that stays open counts toward combined LTV.
6. Direct payoffs. Debts you choose to clear at closing go straight to the creditors. The lender needs a payoff statement from each one.
7. Disclosure and funding. The Closing Disclosure shows every payoff. Funds disburse after your right to cancel passes, which is covered below.
Five things decide the outcome: the payoff on the funding date, the appraised value, the cap for your occupancy, any other liens, and whether the existing loan meets seasoning.
What Is Inside Your Payoff?
Your payoff is the exact amount that retires the old loan on a specific date. It is not the principal balance printed on last month’s statement.
| Component | What it is | On your statement? | Moves before closing? |
|---|---|---|---|
| Principal | What you still owe | Yes | Only with a payment |
| Accrued interest | Interest since your last payment | Often not | Yes, daily |
| Fees or charges | Late charges, recording items | Rarely | Possibly |
| Deferred balance | Amounts set aside in a past hardship plan | Sometimes | No |
| Escrow shortage | Taxes or insurance advanced by the servicer | Rarely | Possibly |
Fannie Mae has said a deferred balance on a payoff statement can be included in the payoff for a limited cash-out. The same payoff logic carries over to a full cash-out. If you ever went through a forbearance or a deferral, ask your servicer whether a deferred balance sits in the payoff.
Two other items are worth a question to your servicer. The first is an exit or prepayment charge. Most conventional loans do not have one, but if yours does, it is part of the payoff.
The second is your escrow refund from the old loan, if you have one. It is not part of the payoff at all. It is a refund of your own money, and it does not count as equity cash.
Payoff Timing: The Good-Through Date
A payoff statement is only good through a stated date. Interest keeps accruing every day until the loan is retired, so the figure grows with each day between the statement and funding.
Say your closing slips past the good-through date. The servicer issues a new statement with extra daily interest. The new loan amount was built on the old figure, so that extra interest comes out of the cash you receive. The loan does not grow, because the cap and the appraisal have not changed. Your cash shrinks.
That is why lenders size with a small cushion. They estimate the payoff high enough to cover a few days of drift. If the final number lands lower, the difference generally comes back to you as cash. If it lands higher, you take less. Either way, the total loan is the number tested against the LTV cap.
Liens and Debts That Must Be Cleared
Not everything paid at closing is your choice. Some payoffs are mandatory, some are optional, and each affects cash differently.
| Item | Required or optional | Effect |
|---|---|---|
| Existing first mortgage | Required | Counted first, shrinks cash |
| Tax or judgment liens | Required | Must clear for clear title |
| Delinquent amounts on the home | Required | Cleared from proceeds |
| Second mortgage or HELOC | Depends on structure | Paid off or stays and counts toward combined LTV |
| Credit cards, auto loans | Optional | Paid directly to creditors |
On a limited cash-out, Fannie Mae’s rules say only a second lien that was used to buy the home can be paid off and rolled in. Any other second lien that gets paid off turns the deal into a full cash-out. That reclassification brings the lower leverage cap with it.
Optional debts deserve a pause. The Consumer Financial Protection Bureau’s research on cash-out refinances notes that converting non-mortgage debt into home-secured debt can put the home at risk. A defaulted credit card rarely costs you the house. A defaulted mortgage does. Moving one into the other changes what is at stake.
One underwriting benefit does apply. Debts paid off at closing can generally be removed from your debt-to-income ratio, as long as the lender has a payoff document for each.
The Worked Example, Run Twice
Run this with percentages only, since the dollar figures belong to your own file. Say a home appraises at a value you call 100. The cap is 80, so the maximum total loan is 80% of value.
Run one, the wrong way. You take your statement balance, say it is 55% of value. You assume closing costs and prepaids will add about 2%. You expect roughly 23% of value as cash.
Run two, the right way. Your servicer’s payoff turns out to be 57% of value. Accrued interest, a small fee and an escrow shortage explain the 2-point gap. Costs and prepaids still add about 2%. The same 80 cap leaves roughly 21% of value as cash.
Same house, same cap. Two points of cash vanished because the first run used the wrong number. On a home worth several hundred thousand dollars, that is real money.
Now add a low appraisal. If the home appraises 5% below what you expected, the cap itself shrinks. Your payoff does not shrink with it. The cash is the first thing squeezed.
| Scenario | Payoff | Appraisal | Cash result |
|---|---|---|---|
| Baseline | As quoted | As expected | As planned |
| Payoff rises | Higher | As expected | Cash falls point for point |
| Appraisal drops | As quoted | Lower | Cash falls faster than the drop |
| Both happen | Higher | Lower | Cash can shrink to little or nothing |
If the total goes over the cap, the cash-out shrinks or the deal fails.
Reading Your Closing Disclosure Against Your Estimate
The Closing Disclosure is where your estimate meets reality. Compare it line by line.
- Payoff lines. Match each one to the payoff statement you collected. Check the good-through date.
- Financed costs. Every financed dollar raises the loan amount and eats into the cap.
- Cash to you. This is the number left after the payoffs and costs. It should reconcile with your sizing.
- Escrow refund. It shows separately from your proceeds. Don’t count it twice.
Cash-out loans on a primary residence generally carry a three-business-day right to cancel. The CFPB explains that rescinding does not erase your obligation on the original loan. Funds typically disburse after that window closes.
Where the General Rule Breaks
The sequence above holds for most files. These cases bend it.
Cash purchases. The delayed-financing exception covers a home bought for cash. Under that exception, the new loan is limited to your documented purchase investment plus financed closing costs, prepaids and points, and it still sits under the cash-out LTV cap.
Incidental cash on a limited refinance. A rate-and-term refinance can return a little cash. Fannie Mae’s cap changed. Announcement SEL-2025-08 set it at the greater of 1% of the new loan’s unpaid principal balance or $2,000. Older material quotes the lesser of 2% or $2,000. Go over it and the loan is priced and capped as a cash-out.
A second lien used for forbearance catch-up. If a second lien resolved missed payments from a forbearance, it was not used to buy the home. The deal counts as a full cash-out.
Co-owner buyouts. Buying out a co-owner, such as after a divorce, is a special-purpose cash-out with its own occupancy and documentation rules that differ between the two agencies. Verify the specifics for your file.
Student-loan cash-out. Fannie Mae offers a version that pays off student loans. It waives the cash-out price adjustment, and cash back is limited to the greater of 1% or $2,000.
Energy-improvement debt. Fannie Mae allows exceptions for paying off PACE loans and other debt used solely for energy improvements.
A second home carries a lower leverage cap, and occupancy alone decides which one applies.
Government loans. An FHA cash-out is capped at 80% of adjusted value for case numbers assigned after a rule change that lowered the earlier cap. Older sources still show the previous, higher limit. The VA IRRRL, the streamline for existing VA loans, cannot return cash at all, and no loan other than the existing VA loan can be paid from it, per the VA. Equity access on a VA loan means a VA cash-out.
A rate-and-term alternative. If you only need a better loan and no cash, the cash-out refinance programs and the rate-and-term programs differ mainly in leverage. Rate-and-term reaches 95% LTV on a one-unit principal residence, with mortgage insurance above 80%. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
One practitioner note. Across the wholesale programs we place files with, payoff surprises are a common reason a cash-out figure moves late in the file. A borrower who requests a payoff statement before applying, and asks about a deferred balance, an escrow shortage and any exit charge, usually avoids it.
What the Decision Looks Like in Practice
Start with your goal. If you want cash to pay down other debt, remember the trade: unsecured balances become home-secured ones. If you want cash for a project, the cash-out cap tells you the ceiling, and your payoff tells you what is left under it.
Then ask three questions.
1. What is my true payoff, with accrued interest, on a realistic funding date?
2. Does anything else need to be paid, such as a second lien?
3. How much cash do I need, and does the cap leave it after costs?
A larger balance and a reset term generally raise your monthly payment compared with the old loan. Weigh that before you take every dollar the cap allows. Tax treatment can depend on your situation; borrowers should speak with a qualified tax professional before relying on any deduction or credit.
Key Terms Defined
Payoff: the exact amount needed to retire your existing loan on a specific date, including accrued interest and any fees.
Statement balance: the principal you owe as printed on your monthly statement, which leaves out interest accrued since your last payment.
Loan-to-value (LTV): the new loan amount divided by the appraised value of the home.
Combined LTV: the total of all loans secured by the home divided by its appraised value.
Per-diem interest: the daily interest that accrues on your old loan until it is paid off.
Net cash: what you receive after the payoff, other required payoffs and financed costs come out of the new loan.
Seasoning: the minimum age a loan or ownership period must reach before it qualifies.
Frequently Asked Questions
Is my payoff the same as my mortgage balance?
No. Your payoff includes the principal plus interest accrued since your last payment, and it can include fees, a deferred balance or an escrow shortage. Your servicer issues it for a specific date. It is usually higher than the balance on your statement.
What happens to my escrow account when I refinance?
The old servicer refunds the balance to you after the old loan is paid off. It is your own money returning, so lenders do not count it as equity cash or as part of your proceeds. The new loan usually sets up a fresh escrow account.
What if my payoff goes up before closing?
The new loan amount is already set against the LTV cap, so your cash shrinks by the extra interest. Lenders often size with a small cushion. If the final payoff comes in lower, the difference generally returns to you.
Can closing costs be rolled into the new loan?
Often yes. Fannie Mae allows closing costs, points and prepaids to be financed in a cash-out. Each financed dollar raises the loan amount and uses up room under the cap, so it reduces your cash. Subject to lender guidelines and full file review.
Does paying off a second mortgage change my loan type?
Yes, it can. On a limited cash-out, only a second lien used to buy the home may be paid off without reclassification. Paying off any other second turns the deal into a full cash-out, with its own cap and pricing.
Before You Size: Documents to Request
- A current payoff statement with a good-through date and per-diem amount.
- Written confirmation of any deferred balance, escrow shortage or exit charge.
- Payoff statements for any second lien or debt you plan to clear.
- Your latest escrow analysis.
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
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. Fannie Mae Selling Guide B2-1.3-03, Cash-Out Refinance Transactions
2. Fannie Mae Selling Guide B2-1.3-02, Limited Cash-Out Refinance Transactions
3. CFPB, Cash-Out Refinances and Paydown Behavior of Non-Mortgage Debt Balances
4. Consumer Financial Protection Bureau, Right of Rescission
5. Fannie Mae Selling Guide archived B2-1.3-03
6. Fannie Mae Announcement SEL-2025-08
7. U.S. Department of Veterans Affairs, IRRRL
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 for Borrowers Sizing the Base Loan Amount · Can You Get a Cash-Out Refinance on a Home Gifted to You? · Does a Cash-Out Refinance Involve an Appraisal and Payoff?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Compliance and disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage broker and is not a direct lender, depository institution, financial advisor, or tax professional. Content in this article is general market analysis and educational information — not financial, legal, or tax advice for any specific situation. Lendmire does not guarantee loan approval; every transaction is subject to underwriting by the funding lender. Mortgage pricing and loan program guidelines are subject to change at any time without notice and vary by borrower characteristics, property type, and state regulations. Lendmire complies with Equal Housing Opportunity. Licensure verification: NMLS Consumer Access.