Every refinance is one of two things and they are priced differently. A rate-and-term refinance replaces the existing debt and nothing more. A cash-out refinance replaces it with a larger loan and hands you the difference. The firms in this record that separate the two publish a lower maximum for the second, and knowing the size of that step is the whole planning question.
The gap, in published numbers
LendingOne publishes up to 80% LTV on purchase or rate-and-term refinance and up to 75% on cash-out, which is the clearest published statement of the step in this record. Lendmire publishes 75% as its maximum cash-out LTV with a 700+ FICO alongside it. Unconventional Lending publishes a typical cap of 75% and treats a coverage ratio at or above roughly 1.25 as a strong refinancing candidate.
Why cash-out costs more than five points of leverage
A lender advancing new money against appreciation is taking a different risk from one replacing an existing loan at the same balance, and prices it accordingly in rate as well as in leverage. Seasoning requirements are common, meaning the property must have been owned for a minimum period, and some programmes want the appreciation evidenced by an appraisal rather than by a recent purchase price.
Which one your plan actually needs
If the objective is a lower payment or a longer runway before a balloon, rate-and-term gets you more leverage and a better rate. If the objective is capital for the next purchase, cash-out is the tool and the extra cost is the price of the capital. The mistake worth avoiding is taking cash out because it is available rather than because it has somewhere to go, on a coverage ratio that leaves no margin.
Questions people ask about investment property refinance
What is the difference between rate-and-term and cash-out?
Rate-and-term replaces the existing debt and nothing more; cash-out replaces it with a larger loan and pays you the difference. Cash-out carries lower maximum leverage and usually a higher rate.
How much less can I borrow on cash-out?
LendingOne publishes up to 80% on rate-and-term against up to 75% on cash-out, which is the clearest published statement of the step in this record.
Is there a seasoning requirement?
Commonly, yes: many cash-out programmes require the property to have been owned for a minimum period and want appreciation evidenced by appraisal.