Cash-Out vs Rate-and-Term Refinance: What Changes
A rate-and-term refinance replaces your mortgage with a new one of about the same size, to change the rate, the term, or both. A cash-out refinance replaces it with a bigger loan and hands you the difference. Both are secured by your home, so if you cannot repay you could lose it. They are priced and capped differently, and the extra cost of a cash-out loan falls on the whole balance, not just on the cash. This page shows the published rules and runs one example to the cent.
Partner disclosure. Loans Generator may be paid through an affiliate network when you click or submit a request through the offer link on this page. This does not change what we report.
Key takeaways
- Fannie Mae calls rate-and-term a "limited cash-out refinance." Cash back is capped at "the greater of 1% of the new refinance loan amount or $2,000."
- For a one-unit principal residence, Fannie Mae's Eligibility Matrix caps a cash-out refinance at 80% loan-to-value. A limited cash-out refinance can go to 95%, or 97% for a fixed-rate loan in some automated-underwriting cases.
- Fannie Mae's price adjustments are higher for cash-out loans at every credit score and LTV tier we checked.
- In our illustration, $60,000 of cash raises the payment by $442.61 a month, which is what $60,000 would cost at about 8.06% over 30 years, even though the cash-out rate in the example is 7.00%.
What is the difference?
| Factor | Rate-and-term (limited cash-out) | Cash-out refinance |
|---|---|---|
| New loan amount | Old balance plus allowed costs | Old balance plus cash plus costs |
| Cash to you | At most the greater of 1% of the loan or $2,000 (Fannie Mae) | The difference, up to the LTV cap |
| Maximum LTV, one-unit principal residence (Fannie Mae) | 95% manual; in DU, 97% for a fixed-rate loan (95% for an ARM) when Fannie Mae owns the existing loan | 80% |
| Seasoning (Fannie Mae) | Not subject to the cash-out loan's 12-month and six-month rules in B2-1.3-03; lenders may set their own | Existing first mortgage "must be at least 12 months old"; a borrower on title at least six months |
| Price adjustment, 740 to 759 score, 75.01% to 80% LTV | 1.125% of the loan | 2.375% of the loan |
| Minimum score, manual underwriting, one-unit principal residence (Eligibility Matrix) | DTI up to 36%: 680 above 75% LTV and 640 at 75% or less with no reserves; 660 above 75% with 6 months of reserves; 620 at 75% or less for a fixed-rate loan with 2 months. DTI up to 45%: 720 or 680 with no reserves, or 700 or 660 with 6 months of reserves | DTI up to 36%: 680 above 75% LTV, 660 at 75% or less with no reserves, or 660 or 640 with 6 months of reserves. DTI up to 45%: 700 above 75% LTV, 680 at 75% or less, with 2 months of reserves |
| Minimum score, DU (automated underwriting) | "A minimum credit score is not required for DU loan casefiles" (Selling Guide B3-5.1-01 (04/22/2026)); lenders set their own | Same |
| Right to cancel, refinancing with the lender that originally made your current loan or a lender that later merged with or acquired that lender | Exempt, except any new money (12 CFR 1026.23(f)(2) and its official interpretation) | Rescindable for the new money |
| Right to cancel, any other lender (including one that bought or services your loan) | The whole refinance is rescindable | The whole refinance is rescindable |
| Interest deduction | Treated as home acquisition debt up to the old balance (IRS Pub. 936) | Only the old balance, plus any cash used to buy, build or substantially improve the home |
Fannie Mae's seasoning and title rules for cash-out loans come from Selling Guide B2-1.3-03, dated 12/10/2025. The price adjustments come from its loan-level price adjustment matrix, updated September 30, 2026. The credit score minimums come from its Eligibility Matrix, read October 26, 2026. Fannie Mae charges these adjustments to the lender that sells it the loan; lenders generally build them into the rate or the points you are quoted. FHA and VA cash-out rules differ and are listed in cash-out refinance requirements.
How much more does a cash-out loan cost?
Figure: Loan-level price adjustments Fannie Mae charges lenders, as a percent of the loan amount. The limited cash-out (rate-and-term) figures apply to loans with terms over 15 years; the cash-out figures apply to all terms. How much of this reaches you, and whether as a higher rate or as points, depends on the lender.
A worked illustration
This is an illustration with hypothetical rates, not an offer or a quote. Payments are principal and interest only. They do not include taxes and homeowners insurance, so your actual payment will be higher. Both loans are fixed-rate, 30-year loans. Interest and payments are rounded half-up to the cent each month.
Assumptions. Home value $400,000. Mortgage balance $260,000 (65% LTV). Credit score in the 740 to 759 band. Closing costs other than the price adjustment are left out so the difference stands alone.
| Rate-and-term refinance | Cash-out refinance | |
|---|---|---|
| New loan | $260,000 (65% LTV) | $320,000 (80% LTV), $60,000 cash |
| Hypothetical rate | 6.75% fixed interest rate and APR (no finance charges assumed) | 7.00% fixed interest rate and APR (no finance charges assumed) |
| Every payment | 359 payments of $1,686.36, final payment $1,680.57 | 359 payments of $2,128.97, final payment $2,126.33 |
| Total interest over 30 years | $347,083.81 | $446,426.56 |
| Fannie Mae price adjustment, if passed through as points | 0.250% × $260,000 = $650.00 | 2.375% × $320,000 = $7,600.00 |
The cash-out loan's payment is $442.61 a month higher. Taken alone, $60,000 at 7.00% over 30 years would cost $399.18 a month. The extra $43.43 comes from paying a rate 0.25 percentage point higher on the $260,000 you already owed. Put another way, $442.61 a month for 30 years is what a $60,000 loan costs at about 8.06%. That is the real price of the cash in this example. The rates already stand in for pricing; if a lender instead charged the price adjustments as points, the cash-out loan would cost $6,950.00 more up front ($7,600.00 against $650.00). Count one or the other, not both.
Two other costs do not show in the payment:
- A longer payoff. Research cited by the CFPB's research office found that a typical cash-out refinance "had a longer loan term and larger monthly payment compared to the paid-off mortgage."
- Card debt becomes mortgage debt. The CFPB's 2022 mortgage market report said cash-out refinances "can result in unsecured debt, such as credit card debt, becoming secured by the home."
If you only need cash and your current rate is low, a second lien may cost less than repricing the whole loan. That comparison is in HELOC vs cash-out refinance.
When does a rate-and-term refinance make sense?
When the new rate or term saves more than the closing costs over the time you will keep the loan. The simple test is closing costs divided by monthly savings, which gives the months to break even. Two cautions:
- Watch the term reset. Lower payments from stretching the loan back to 30 years can hide higher total interest. Compare the total interest you would pay over the time you expect to keep the home.
- "No closing cost" is not free. The CFPB says lenders cover those costs either by "charging you a higher interest rate and giving you a credit" or "by adding the closing costs to your loan amount."
Run your own numbers in the refinance break-even calculator.
Taxes and rescission
IRS Publication 936 says refinanced debt counts as home acquisition debt "only up to the amount of the balance of the old mortgage principal just before the refinancing." Interest on cash-out money is deductible only for the part used to buy, build or substantially improve the home, only up to $750,000 of combined mortgage debt ($375,000 if married filing separately) for debt taken on after December 15, 2017, and only if you itemize. Publication 936 also says points paid to refinance "generally" are not deductible in full in the year paid and are instead deducted over the life of the loan.
Regulation Z gives you until midnight of the third business day to rescind a refinance secured by your principal dwelling; business days for this purpose include Saturdays (12 CFR 1026.2(a)(6)). If the lender that originally made your current loan, or a lender that later merged with or acquired that lender, refinances it, the exemption in 12 CFR 1026.23(f)(2) applies, and Regulation Z's official interpretation says that "the amount of the new advance is rescindable." With any other lender, including one that bought or services your loan, the whole refinance is rescindable.
Who the refinance link on this page is for
The refinance request link below goes to a refinance matching offer that looks for homeowners refinancing a loan over $150,000, with a loan-to-value under 90% and good or excellent credit. It does not cover mobile homes, and it is not available for homes in Indiana, Kentucky, New York or Ohio. If that is not you, the published rules on this page still apply when you shop with any lender directly. If your home is in one of those four states, the link is replaced with a link to our home equity guides.
Before you apply: a refinance is secured by your home. If you cannot repay, you could lose your home. No lender can promise approval, a rate, or that a refinance will lower your total cost. Loans Generator may be paid through an affiliate network when you click or submit a request through the link below; this does not change what we report.
Our link is not offered for homes in Indiana, Kentucky, New York or Ohio. Choose your state to see the link.
Common questions
Is a rate-and-term refinance the same as a no cash-out refinance?
Yes. Fannie Mae calls it a limited cash-out refinance because it allows a small amount of cash back, up to the greater of 1% of the new loan or $2,000.
Why is a cash-out refinance rate higher?
Fannie Mae charges lenders larger price adjustments on cash-out loans, as its matrix shows at every score and LTV tier. Lenders generally pass that through in the rate or points.
How much cash can I take out?
For a conventional loan sold to Fannie Mae on a one-unit home you live in, the new loan can be up to 80% of the appraised value. On a $400,000 home with $260,000 owed, that is a $320,000 loan and $60,000 before closing costs.
Can I take cash out right after buying?
Usually not for a conventional loan. Fannie Mae requires the mortgage being paid off to be at least 12 months old and a borrower on title for at least six months, with limited exceptions such as delayed financing.
Should I refinance to pay off credit cards?
It can lower the rate on that debt, but it puts your home behind it and can stretch it over 30 years. Compare with unsecured options first in using a HELOC to consolidate credit card debt, where the same risk applies.
Sources
- Fannie Mae, Selling Guide B2-1.3-02, Limited Cash-Out Refinance Transactions, accessed October 26, 2026.
- Fannie Mae, Selling Guide B2-1.3-03, Cash-Out Refinance Transactions (12/10/2025), accessed October 26, 2026.
- Fannie Mae, Eligibility Matrix, accessed October 26, 2026.
- Fannie Mae, Selling Guide B3-5.1-01, General Requirements for Credit Scores (04/22/2026), accessed October 26, 2026.
- Fannie Mae, Loan-Level Price Adjustment Matrix, updated September 30, 2026, accessed October 26, 2026.
- Consumer Financial Protection Bureau, Office of Research blog, "A look at cash-out refinance mortgages and their borrowers between 2013 to 2023", accessed October 26, 2026.
- Consumer Financial Protection Bureau, "CFPB Mortgage Report Finds Jumps in Closing Costs and Denials for Insufficient Income, Growing Proportion of Cash-Out Refinances", accessed October 26, 2026.
- Consumer Financial Protection Bureau, "Is there such a thing as a no-cost or no-closing cost loan or refinancing?", accessed October 26, 2026.
- Consumer Financial Protection Bureau, Regulation Z, 12 CFR 1026.2(a)(6) and 12 CFR 1026.23 with official interpretation, accessed October 26, 2026.
- Internal Revenue Service, Publication 936 (2025), accessed October 26, 2026.
- Fannie Mae, “Loan-Level Price Adjustment Matrix (updated September 30, 2026)”
- Consumer Financial Protection Bureau, “Office of Research blog: A look at cash-out refinance mortgages and their borrowers between 2013 to 2023”
- Consumer Financial Protection Bureau, “Regulation Z, 12 CFR 1026.23 Right of rescission”
- Internal Revenue Service, “Publication 936 (2025), Home Mortgage Interest Deduction”
- Consumer Financial Protection Bureau, “Regulation Z, 12 CFR 1026.2(a)(6) Business day”
Loans Generator is not a lender or mortgage broker. Rates in this page's examples are hypothetical illustrations, not offers. No lender can guarantee approval, a rate or a payment. Rules cited here were checked on October 26, 2026 and change without notice. Availability and terms vary by lender and by state. This page is general information, not legal, tax, or financial advice.