By Justin Ashcraft, President, Northern Ridge Capital. More than $600M in commercial real estate deal experience. California DRE #02093377. Last updated October 2026.
Yes, you can do a cash-out refinance on a commercial property when the new loan the property qualifies for is larger than the balance you're paying off. The difference, after closing costs and any prepayment cost on the old loan, comes to you as cash.
Key points
- Lenders size the new loan with two tests, debt service coverage and loan to value, and lend the lower answer. Your cash is that answer minus the payoff and costs.
- Freddie Mac's fixed-rate multifamily term sheet (April 2026) sets a 1.25x minimum amortizing debt coverage ratio and a maximum loan to value of 75% to 80% on amortizing loans, depending on term.
- Higher rates shrink the coverage answer. The 10-year Treasury was 5.29% on 30 September 2026, up from 4.79% on 1 September.
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How does a cash-out refinance on a commercial property work?
A new loan pays off the existing one, and the new loan is bigger. It works when the property's value or income has grown since the last financing, or when the old loan has paid down enough. The cash can fund another acquisition, capital improvements, or a return of equity to partners. Ask your CPA how the proceeds will be treated for tax purposes before you plan around them.
The lender starts from what the property can carry and subtracts what you owe.
How much cash can you take out of a commercial property?
As much as the lower of the two sizing tests allows, minus your payoff and costs. Here's the sequence lenders follow:
- Run the coverage test. Divide net operating income by the lender's minimum debt service coverage ratio. That's the most annual debt service the income can support. Convert it to a loan amount at the quoted rate and amortization.
- Run the value test. Multiply the appraised value by the lender's maximum loan to value.
- Take the lower number. That's the maximum new loan.
- Subtract the payoff. Take off the current balance, closing costs and any prepayment cost on the existing loan. What's left is your cash out.
Our commercial refinance calculator runs these steps on your own numbers and shows which test sets the loan.
Hypothetical example: round illustrative figures, not market data or a quote. A property worth $20 million earns $1.4 million of net operating income and owes $9 million. The lender's limits are 65% loan to value and 1.25x coverage, at an assumed 7.0% rate on a 30-year amortization.
- Value test: 65% of $20 million is $13.0 million.
- Coverage test: $1.4 million divided by 1.25 allows $1.12 million a year of debt service, which supports about $14.0 million at 7.0%.
- The value test is lower, so the loan is $13.0 million. After the $9 million payoff, that leaves about $4.0 million before closing and prepayment costs.
At an assumed 8.0% instead, the same income supports only about $12.7 million. Now the coverage test sets the loan and the cash out drops to about $3.7 million. A one-point move in rate cost about $280,000 of proceeds here without any change to the building.
What limits a cash-out refinance on commercial property?
Loan to value. For banks, federal guidelines put a ceiling on it. The Interagency Guidelines for Real Estate Lending Policies (FDIC, 12 CFR Part 365, Appendix A) set a supervisory loan-to-value limit of 85% for improved property, and say each bank's internal limits "should not exceed" the supervisory ones. A lender's own limit can sit well below that. Freddie Mac's fixed-rate multifamily term sheet, dated April 2026, caps amortizing loans at 75% for terms of 5 to under 7 years and 80% for 7 years or longer, and full-term interest-only loans at 65% to 70%.
Debt service coverage. The same Freddie Mac sheet sets a 1.25x minimum amortizing debt coverage ratio across its term options. Coverage is where rate moves hit you. Freddie Mac's own product sheet calls the Treasury index "the most volatile part of the coupon" on its fixed-rate loans. The U.S. Department of the Treasury reported the 10-year par yield at 5.29% on 30 September 2026, 50 basis points above its 4.79% reading on 1 September.
A fresh appraisal. Under FDIC appraisal rules (12 CFR 323.3), commercial real estate transactions above $500,000 need an appraisal by a state certified or licensed appraiser. The exemption for an existing loan at the same bank is narrow when new money goes out: it applies only if market conditions and the property haven't materially changed, or if no new money is advanced "other than funds necessary to cover reasonable closing costs." A cash-out refinance is new money, so plan on the value being tested.
What does it cost to get out of the existing loan?
Check your prepayment terms before you count the cash. Fixed-rate commercial loans can carry yield maintenance or defeasance. Freddie Mac's fixed-rate term sheet, for example, applies yield maintenance until securitization, then a two-year lockout, then defeasance, with no prepayment premium in the final 90 days. Your own note will spell out its terms. That cost comes straight out of your proceeds.
If the prepayment cost is too high, there may be another route. The same term sheet lists supplemental loans as available "subject to requirements specified in the Loan Agreement." A supplemental loan adds a second loan on top of the first rather than replacing it. And if the coverage test comes back short, the fix list in DSCR too low to refinance applies to cash-out deals too.
Cash-out refinance FAQ
What loan to value can I get on a commercial cash-out refinance?
It depends on the lender, the property and the coverage. For banks, the federal supervisory ceiling on improved property is 85%. Freddie Mac's April 2026 fixed-rate multifamily term sheet caps amortizing loans at 75% to 80% depending on term. The coverage test can cut the loan below either cap.
Does a commercial cash-out refinance need a new appraisal?
Usually. FDIC rules require an appraisal by a state certified or licensed appraiser for commercial real estate transactions above $500,000, and the exemption for existing loans is narrow when new money is advanced.
Why did my cash-out number shrink when rates went up?
Because the coverage test converts a fixed amount of income into a loan at the current rate. A higher rate means a bigger payment per dollar borrowed, so the same income supports a smaller loan. The refinance calculator shows the effect on your own numbers.
Is Northern Ridge Capital a lender?
No. We're a commercial real estate mortgage broker, not a lender. We're paid when your deal closes with whichever lender in our 700+ network gives you the best structure, so our incentive and yours point the same way. Commercial real estate only, no residential.
About Northern Ridge Capital
Northern Ridge Capital is a commercial real estate debt brokerage placing $5 million to $30 million loans across multifamily, retail and industrial in California, Texas, Florida, Georgia and Indiana. Justin Ashcraft, the president, has more than $600M in commercial real estate deal experience and holds California DRE license #02093377. We run your file across a network of 700+ lenders and bring back the structures that fit. For the full refinance picture, start at commercial property refinance.
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This article is general information, not a loan commitment, and not legal, tax or investment advice. Figures are attributed to their sources and dated; they describe the market, not any specific loan. Terms depend on the property, the sponsor and market conditions at the time of application. Northern Ridge Capital is a commercial real estate mortgage broker, not a lender. See our full disclaimer.