A DSCR rate-and-term refinance replaces an existing loan on a non-owner-occupied rental with a new loan of similar size, changing its term, structure, or parties rather than extracting equity. It is commonly used to move off short-term financing or to change the shape of the payment.
What makes a refinance rate-and-term
In a rate-and-term refinance, the new loan pays off the existing lien plus allowable closing costs. Any cash returned to the borrower is limited to a small amount defined by the lender's guidelines. Anything beyond that is treated as a cash-out refinance, which usually carries different leverage limits and seasoning rules.
Because no meaningful equity is being withdrawn, rate-and-term transactions often allow higher leverage and shorter seasoning than cash-out transactions, though each lender sets its own limits.
Exiting short-term bridge or hard-money financing
Investors who acquire or renovate a property with short-term bridge or hard-money financing often need a longer-term loan before that financing matures. A DSCR rate-and-term refinance can replace the short-term loan once the property is stabilized and rented.
The appraisal after renovation sets the value, and the lease or market rent sets the qualifying income. Lenders review the property's title history and the original acquisition, and some apply seasoning rules even to rate-and-term transactions.
Changing the loan structure
Investors also refinance to change how the loan behaves over time. The choice is about structure, and the right fit varies with the investor's plans for the property.
- Moving from an adjustable-rate loan to a fixed-rate loan for payment predictability.
- Changing the amortization term or adding or removing an interest-only period.
- Replacing a loan whose prepayment terms or balloon date no longer fit the hold plan.
- Consolidating a property out of a blanket or cross-collateralized loan.
Removing a partner or changing vesting
When a co-owner leaves an investment, the remaining owner may refinance to take over the loan in their own name or entity. If the transaction includes paying the departing partner for their equity, some lenders treat that portion as cash-out, while others have specific buyout provisions. Ownership documents and the agreement between the parties are reviewed closely.
What underwriting reviews
Underwriting still calculates the coverage ratio on the new PITIA and reviews credit, reserves, the appraisal, title, insurance, and the payment history on the existing loan. Late payments on the loan being refinanced can affect eligibility.
How we approach it
As a mortgage broker, we arrange and shop this financing from wholesale lenders. We review the existing loan, the property's rent and value, and the goal of the refinance, then identify which structures fit. All terms are subject to underwriting and lender or investor approval.
Questions about this loan purpose
- Can I refinance out of a hard-money loan with a DSCR loan?
- Often, yes, once the property is rented or rent-ready and appraises at a value that supports the new loan. Some lenders apply seasoning rules to recently acquired properties even on rate-and-term transactions.
- How much cash can I receive on a rate-and-term refinance?
- Only a small amount set by each lender's guidelines. Larger amounts turn the transaction into a cash-out refinance with its own limits.
- Will a refinance lower my payment?
- That is not assured. The outcome reflects the market at the time, the structure chosen, and the property's profile, so a scenario review compares the existing loan with the available options.
Broker, not a lender. Business-purpose loans for non-owner-occupied investment property only; not for personal, family or household use. Not a commitment to lend. All loans subject to underwriting and lender/investor approval; terms subject to change.