Cash-out refinance on commercial property

The decision

A cash-out refinance answers two questions. How much can you pull? And is it cheaper to replace your current loan or to borrow behind it? If your existing rate is well below today’s market, the second question often decides the first.

Cash-out is common. Of 2025 HMDA-reported apartment originations, 14.0% were cash-out refinances¹, and 48.9% of 2025 multifamily originations were refinances (incl. cash-out)¹. The 64.5% median combined loan-to-value¹ shows where the typical new loan landed against value.

How proceeds are sized

Your gross cash is the new loan amount minus your payoff. The new loan is the lowest of three numbers:

1. The lender’s cash-out LTV limit times the new appraisal. (LTV = the loan amount divided by the value of the property securing it, measured at origination³.)
2. The loan the NOI supports at the lender’s minimum coverage ratio and today’s rate.
3. Any program cap on cash-out, such as FHA’s 223(f) rule or a lender’s hard-equity test.

Then subtract the prepayment premium on the old loan, closing costs, any reserve deposits and any repair holdback. What is left is the cash you actually receive.

Worked example: full refinance or supplemental

Illustration. An apartment building appraises at $6,000,000 with $420,000 of NOI. The owner’s existing agency loan has a $2,500,000 balance at 3.75%.

Option A, full refinance at an illustrative 6.50%, 30-year amortization, 1.25x coverage, 75% LTV:

Line (illustration)	Amount
75% of value	$4,500,000
Loan at 1.25x coverage (binds)	about $4,430,000
Less payoff	$2,500,000
Less prepayment (illustrative 1% minimum)	$25,000
Less closing costs (illustrative 2% of the new loan)	$88,600
Net cash	about $1,816,000
New annual debt service	about $336,000

Option B, keep the 3.75% loan and add a supplemental loan at an illustrative 7.00% up to 70% combined LTV:

Line (illustration)	Amount
70% combined of $6,000,000	$4,200,000
Supplemental loan	$1,700,000
Combined coverage	about 1.53x
Blended rate on $4,200,000	about 5.07%
Combined annual debt service	about $275,000

Option A puts roughly $116,000 more in your pocket before Option B’s own costs. Option B costs about $61,000 a year less in debt service and keeps the cheap first loan. Over a few years the supplemental usually wins, unless you need every dollar now or the first loan matures soon. Model your own deal with the cash-out calculator and the blended rate calculator.

The supplemental limits in the illustration come from the agencies’ term sheets: Fannie Mae supplemental loans go as high as 70% LTV, depending on asset class and use of proceeds⁴, with coverage as low as 1.30x⁴, while Freddie Mac allows 80% combined LTV at 1.25x (7-year term)⁵ with a $1 million minimum supplemental⁵.

Cash-out limits by lender type

Lender or program	Cash-out rule	Watch for
Fannie Mae (DUS and small loans)	Program LTV and DSCR apply (80% max LTV6 on small loans), plus a documented hard-equity review	Stabilized occupancy; non-recourse with carve-outs
Fannie Mae or Freddie Mac supplemental	Sized on combined debt. Fannie Mae: available 12 months after the senior loan closes4	Freddie’s cannot fall in the first loan’s last years
Freddie Mac Conventional Small	Amortizing: 80% (7-year+ terms); 75% (5 to under 7 years)7. Full-term interest-only: 65% LTV (7 years or less), 70% (over 7 years)7	Excludes student, seniors, MHC and co-op properties; no hard subordinate debt7
FHA 223(f)	Greater of 80% LTV or the cost to refinance2	Long HUD process. Prepayment generally prohibited for 5 years from endorsement2
Banks	Bank policy within the federal ceiling of 85% maximum LTV for improved (completed, income-producing) property8	Personal guarantee; shorter amortization
Credit unions	Part 723 sets no fixed LTV cap; each credit union's board policy must set LTV limits by collateral type9	Loans-to-one-borrower limit on larger deals

The bank ceiling is a supervisory maximum, not what banks typically lend. Most bank cash-out loans land well below it.

Timeline and documents

A full agency or bank refinance with cash out usually takes as long as any refinance: appraisal, third-party reports, underwriting and closing. A supplemental loan runs on the same agency process with a new appraisal of the whole property. Have these ready:

• Payoff statement and the current note, with its prepayment clause.
• Trailing twelve-month operating statement and current rent roll.
• A use-of-proceeds statement. Lenders read it.
• Capital expenditure history since you bought, with invoices. This is how you prove value you created.
• Guarantor financial statements, schedule of real estate owned and liquidity.

Pitfalls

1. Refinancing away a cheap loan to raise a little more cash. Run Option B first.
2. Forgetting the prepayment premium. On a loan in its yield maintenance period, the premium can exceed the extra proceeds. When Treasury yields are above your note rate, many documents fall back to a minimum; Fannie Mae’s is a minimum premium of 1% of the balance¹⁰.
3. Assuming the appraisal will match your estimate. Lenders use their own cap rate and underwritten NOI with a vacancy factor and a replacement reserve.
4. Interest-only cash-out. Some lenders cut leverage for interest-only. Freddie Mac tests DCR on interest-only loans using an amortizing payment, not the interest-only payment⁷.
5. Leaving no reserves. A cash-out that drains your liquidity can fail the guarantor liquidity test on the same loan.