Cash-out refinance

What you need to qualify for a cash-out refinance

A commercial cash-out refinance turns on the stabilised income and a defensible valuation, because the lender is lending against an income stream and the value it commands. They want proven, stable occupancy and a settled rent roll, the strength and security of the tenant or operator covenants, the lease terms and any break clauses, and a valuation on an investment basis that supports the higher figure. They size the new loan so the net rental income covers the debt service with headroom, applying a minimum interest cover ratio, and they cap it at a loan to value against the revalued figure. The cash released is whatever sits above the facility being repaid, so the more the asset has revalued and the stronger the income, the more equity comes out. They will assess the borrower and the asset's history, but the income and the valuation do the heavy lifting. We package the rent roll, the covenants and the valuation evidence so the asset is presented at its strongest.

How much equity you can release and on what basis

The cash a refinance releases is the new loan less the facility it repays, so it depends on how far the asset has revalued and how much income it now produces. The new loan is sized on two limits and set to the lower of the two: a loan to value against the revalued investment figure, indicatively up to 70 to 75 percent, and an interest cover test that sizes the loan so stabilised net income covers the debt service with headroom. On a strongly let asset the interest cover test is usually the binding constraint, so a higher, more secure income releases more equity than loan to value alone would suggest. Pricing is typically a margin over SONIA or the Bank of England base rate, or a fixed rate, set by the leverage and the covenant. We model the achievable loan from the rent roll and a sensible yield, and the cash it releases, before approaching lenders, and we never gear the cash-out past what the income comfortably covers. All bands are illustrative, vary by lender and asset, are subject to principal sign-off, and are not an offer.

The cost of refinancing and releasing equity

A cash-out refinance carries the costs of putting new long-term debt in place: a lender arrangement fee, indicatively around 1 to 1.5 percent of the loan, an investment valuation, legal costs for both sides, and any early repayment charge on the facility being redeemed, which is worth checking before committing. Against those costs sits the value of the equity released and, often, a lower rate than the short-dated debt being repaid, because a stabilised asset on a term loan is the cheapest money in the lifecycle. The arithmetic usually favours the refinance once an asset has genuinely stabilised and revalued, but it is worth confirming the new rate, the fees and any redemption penalty net out positively before proceeding. We disclose our broker fee in writing, compare the all-in cost across the market, and never claim an exclusive panel or an exclusive tie to any lender. The figures are indicative and not an offer of finance.

Cash-out refinance against a sale or a rate-only remortgage

A cash-out refinance and a sale both recover capital from a stabilised asset, but the refinance keeps the asset, the income and the future growth while a sale gives them up, so the refinance suits an owner who believes in the asset and wants to recycle equity rather than exit. A straight rate-only remortgage, by contrast, replaces the existing debt at a similar size purely to improve the rate or terms, without releasing equity, which suits an owner whose facility is maturing or overpriced but who does not need cash. The cash-out is the right tool specifically when the asset has revalued and the owner wants the uplift in hand without selling. We model all three so the decision is made on the numbers: the equity released, the new rate, the costs, and what the owner does with the cash.