How to refinance a commercial property mortgage
Refinancing a commercial mortgage means replacing your existing loan with a new one, usually at maturity, to lower the rate, change the term, take equity out, or simply pay off a balloon. The new lender sizes the loan from today's income, today's value and today's rates, not the ones in place when you borrowed. That is why the first question in a 2026 refinance is rarely the rate. It is how much the new loan will be, and whether it covers what you owe.
The rest of this guide walks through how lenders size a refinance, what it costs, how long it takes, and how to prepare.
Why 2026 refinances are different
About 17 percent of outstanding commercial and multifamily mortgage balances, roughly $875 billion of $5.0 trillion, is scheduled to mature in 2026, according to the Mortgage Bankers Association (MBA, 9 Feb 2026). Many of those loans were written when benchmark rates were far lower.
The rate backdrop has also moved this month. The Federal Reserve raised its target range a quarter point to 3.75 to 4.00 percent on 16 September, its first increase since 2023 (Federal Reserve, 16 Sept 2026). On 23 September the ten-year Treasury closed at 5.11 percent, the five-year at 4.99 percent and Prime stood at 7.00 percent (Federal Reserve H.15). Check the current commercial loan rates before you model anything, because those figures will have moved by the time you read this.
Capital is available. Commercial and multifamily originations rose 16 percent year over year in the second quarter (Multi-Housing News, citing MBA, 22 Sept 2026). The question for most owners is not whether a lender will refinance them. It is for how much.
How lenders size a refinance: three tests, the smallest wins
A lender runs three tests independently and offers the smallest result.
- Loan to value (LTV). The loan divided by the appraised value. Value is the net operating income divided by a market cap rate, so a higher cap rate means a lower value and a smaller loan.
- Debt service coverage ratio (DSCR). Net operating income divided by annual debt service. A lender requiring 1.25x wants $1.25 of income for every $1 of mortgage payment. Higher rates raise the payment and shrink the loan that clears the test. Our DSCR guide covers how lenders calculate it.
- Debt yield. Net operating income divided by the loan amount. It ignores rate and amortisation entirely, which is why lenders like it as a floor.
We showed with worked numbers why coverage is frequently not the test that binds in DSCR Is Almost Never the Number That Sizes Your Loan.
A worked example: the refinance gap
The example below is illustrative. The rate and cap rates are assumptions for the arithmetic, not a quote.
A property with $900,000 of net operating income has a $10,000,000 balance coming due. The new lender quotes 7.00 percent on a 30-year amortisation and applies a 1.25x DSCR minimum, a 9.0 percent debt yield minimum and a 65 percent LTV maximum.
| Test | Calculation | Maximum loan |
|---|---|---|
| DSCR 1.25x at 7.00%, 30-yr am | $900,000 ÷ 1.25 ÷ 0.0798 loan constant | $9,018,454 |
| Debt yield 9.0% | $900,000 ÷ 0.09 | $10,000,000 |
| LTV 65% at a 7.0% cap rate | ($900,000 ÷ 0.07) × 0.65 | $8,357,143 |
The smallest answer is $8,357,143. Against a $10,000,000 balance, the owner has to bring about $1.64 million to the closing table before costs. That is a cash-in refinance.
Now change one assumption. If the appraiser uses a 6.5 percent cap rate instead of 7.0, value rises to $13,846,154 and the LTV test allows $9,000,000. The gap falls to $1.0 million. Half a point of cap rate moved the owner's check by $642,857, without the interest rate changing at all. That is why your comps matter as much as your rate. You can check sale comps for your property with Finance Lobby's comps tool.
Cash-in, cash-neutral and cash-out: three real refinances from last week
Three deals reported in the same week show the full range.
- Cash-in. Regent Properties refinanced Trammell Crow Center in Dallas with a $406 million, five-year, interest-only loan from Wells Fargo and Morgan Stanley, fixed at 7.45 percent. It replaced a $424 million note, and Regent is adding $19.6 million of cash equity. The tower is 92.8 percent leased (Connect CRE, 21 Sept 2026).
- Cash-out. Brookfield's GGP lined up an $800 million, five-year, interest-only CMBS refinancing of Oakbrook Center outside Chicago. It repays a $700 million loan, covers about $30 million of prepayment penalties and returns about $65 million of equity. The mall is 94.1 percent leased (Bisnow, 22 Sept 2026).
- Construction to permanent, with cash out. Corebridge provided $180 million on Terrazul, a 1,201-bed student housing tower near Florida International University that is 98 percent occupied. The loan retires the construction debt and returns cash to the owners (Commercial Observer, 22 Sept 2026).
Note the Oakbrook detail: $30 million of prepayment penalties. What it costs to leave the old loan is part of every refinance.
What a commercial refinance costs
- Prepayment on the existing loan. Step-down penalties, yield maintenance or defeasance, depending on the note. Refinancing at maturity usually avoids them; refinancing early usually does not. See what defeasance is and how it works.
- Lender fees. Origination and application fees, quoted by the lender.
- Third-party reports. Appraisal, environmental and property condition reports, paid by the borrower.
- Legal and title. Both your counsel and, usually, the lender's.
- Rate lock or hedging costs on fixed or capped floating loans.
For a fuller breakdown, read typical closing costs for a commercial mortgage.
How long a commercial refinance takes
Plan in months, not weeks. The timeline depends on the lender type, the asset and how complete your file is on day one. Third-party reports and legal review set the pace more often than the credit decision does. Start at least six to nine months before maturity so that a first lender passing does not put you in default.
Step by step: how to prepare
- Pull your loan documents. Maturity date, extension options, prepayment terms, and any conditions on extending.
- Update your numbers. Trailing twelve months of operating statements and a current rent roll. Lenders underwrite in-place income, adjusted to their own assumptions.
- Run the three tests yourself. Use a conservative cap rate and today's rates. Know your gap before a lender tells you. Our commercial mortgage calculator handles the payment side.
- Build the comp set. Value drives LTV, and LTV often binds.
- Write the deal memo. Property, business plan, financials, comps and the request, in one document a credit analyst can read in one sitting.
- Go to the right lenders, not the most lenders. A bank, a life company, a debt fund and a CMBS lender will size the same property differently. Match the deal to lenders whose criteria fit it. See how to find commercial real estate lenders.
- Compare quotes on proceeds and structure, not just rate. Loan amount, amortisation, recourse, prepayment and reserves change the real cost more than a few basis points of coupon.
Refinance with Finance Lobby
Finance Lobby is the all-in-one CRE financing platform. Underwrite the deal, build the deal memo and comps, keep documents in one place, and send the refinance to lenders whose lending preferences match it. Their quotes come back side by side so you can compare proceeds, rate and structure in one view.
Start your refinance on Finance Lobby
FAQ (for FAQ schema)
How soon before maturity should I start a commercial refinance? Six to nine months is a sensible minimum. Third-party reports, legal review and a possible second lender all take time, and missing a maturity date can put the loan in default.
What is a cash-in refinance? A refinance where the new loan is smaller than the balance being repaid, so the owner contributes cash at closing to cover the difference. It is common when values or income have fallen, or rates have risen, since the original loan.
Can I take cash out when I refinance a commercial property? Yes, if the new loan sized on today's income and value exceeds the existing balance plus costs. Lenders size cash-out refinances with the same LTV, DSCR and debt yield tests.
What DSCR do lenders require for a commercial refinance? It varies by lender, property type and loan program, and each lender sets its own minimum. Ask for it in the first conversation, because it can decide your loan amount. See our DSCR guide.
Do I pay a prepayment penalty when I refinance? If you refinance before the prepayment period ends, usually yes: a step-down fee, yield maintenance or defeasance, depending on your note. Refinancing at or near maturity usually avoids it.
Does a Fed rate increase change my refinance? It depends on the index your new loan is priced from. Floating-rate loans priced from SOFR or Prime move with short-term rates. Fixed-rate loans are usually priced from Treasury yields, which move on their own schedule.