How it works
A cash-out refinance replaces your current mortgage on the rental with a new, larger loan. The difference, minus any costs, comes to you as cash. Your new loan has a new rate, term and payment.
Because the debt is secured by the property, the lender can foreclose if you can't make the payments. Borrow with a clear purpose and a plan to repay.
How much you can take out
Lenders set a maximum loan-to-value, or LTV, for investment cash-out loans. It's often around 70% to 75% of the property's value, depending on the loan program and number of units. That's lower than the limit for a home you live in.
Example: a rental is worth $400,000 and you owe $180,000. At a 75% limit, the new loan could be up to $300,000. That leaves about $120,000 before costs. This is an illustration, not an offer.
Why pricing is higher
Lenders see rentals as riskier than primary homes, so investment loans usually carry higher rates. Cash-out adds to the pricing too. At CapCenter, investment properties and cash-out refinances are among the cases where an upfront fee may be charged when the rate can't be adjusted enough. Your quote shows any added costs.
Common uses
- A down payment on another rental.
- Renovations that raise rent or value.
- Paying off higher-rate debt tied to the property.
- Building cash reserves for repairs and vacancies.
Run the numbers first
Before you apply, compare the rent you collect with all the costs of owning the property after the refinance.
- New principal and interest payment.
- Property taxes, insurance and any HOA dues.
- Repairs, maintenance and property management.
- A vacancy allowance for months without a tenant.
- What the cash will earn or save you, compared with its cost.
What you'll need to qualify
Expect to document your income, assets and credit, much like any mortgage. For rental income, lenders usually want current leases, tax returns showing the rental, or both. Many lenders also want cash reserves after closing, often measured in months of payments.
Other options
If you have equity in your primary home, you could borrow against it instead. A CapCenter home equity loan is available on single-family primary residences and second homes, not investment properties. It comes with ZERO Closing Costs (restrictions apply; see Offer details). Using your primary home puts that home at risk, so weigh it carefully.
