Cash-Out Refinance

A cash-out refinance pays off the current mortgage with a bigger loan and hands the owner the difference in cash. For an income property, the new loan is capped by the appraised value, and on commercial and larger residential property that value often comes from NOI divided by a market cap rate.

Raising NOI raises the refinance value. At a 5.78% cap rate, each $1,000 of added NOI adds about $17,300 of value, and at a 70% loan-to-value cap about $12,100 of that could be borrowed. Lender limits vary, so confirm the loan-to-value on each quote.

The new, larger payment also has to be covered. Lenders check the debt service coverage ratio on the new loan, which can limit the cash out even when the value supports more.