Cash-Out Refinance
En español: Refinanciamiento con retiro de efectivo (cash-out refinance)
A cash-out refinance replaces an existing loan with a larger one and hands the owner the difference. It is the main alternative to selling: the owner takes money out of the property while keeping it. The new loan is sized by today's income and today's rates, not by what the property is worth on paper.
- Borrowed money is not income, which is what makes this attractive. Confirm the treatment with a CPA before planning around it.
- It is sized by the coverage and debt-yield tests, so a building with flat income supports a flat loan no matter what values did.
- It resets the clock: a new maturity, new costs, and usually a new prepayment structure.
- Compare it honestly against selling, including the tax the sale would trigger and the deal the owner would have to find next.
The same building five years in: unchanged income, the same coverage test, and $947,300 still owed.
Five years of payments turned into $44,460, because the loan is sized by income and the income did not move. Cash out comes from NOI growth, not from time passing.
Related terms
All termsLoan Maturity
Maturity is the date the loan must be repaid in full, regardless of how the property is performing.
FinanceDSCR (Debt Service Coverage Ratio)
The debt service coverage ratio is net operating income divided by the annual loan payment.
FinanceLeverage
Leverage is using borrowed money to control a larger asset than cash alone would buy.
Terms arrive with the writing.
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