Rate-and-Term Refinance: Commercial RE Guide

What Is a Rate-and-Term Refinance for Commercial Real Estate?

A rate-and-term refinance for commercial real estate replaces your existing mortgage with a new loan that has a lower interest rate, a different term length, or both, without increasing the principal balance. For commercial property owners in 2026, understanding rate and term refinance commercial strategies is essential as over $1.5 trillion in commercial real estate loans are maturing between 2024 and 2026, creating both urgency and opportunity for borrowers looking to improve their debt structure.

This refinance type is the most straightforward path to lowering your monthly payments, switching from an adjustable rate to a fixed rate, or extending your loan term to improve cash flow. The new loan pays off the existing mortgage (plus any closing costs rolled in), and you continue with better terms on the same property. No equity is withdrawn, and the loan amount stays at or below the current outstanding balance.

Rate-and-term refinancing is especially relevant in 2026 as commercial mortgage rates have moderated from their 2023 peaks. Many borrowers who locked in rates at 7.0% to 8.5% during the 2022 to 2023 rate surge now have the opportunity to refinance into the 6.0% to 7.5% range depending on property type and loan program. Even a modest rate reduction of 0.5% to 1.0% on a $2 million commercial mortgage translates to $10,000 to $20,000 in annual savings, compounding over the life of the loan.

Whether you own multifamily apartments, retail centers, office buildings, or industrial properties, the rate-and-term refinance process follows a consistent framework. You will need to demonstrate sufficient property income, meet loan-to-value thresholds, and provide standard commercial lending documentation. Explore the full range of refinance programs available to determine which structure fits your situation best.

How Does a Rate-and-Term Refinance Differ from a Cash-Out Refinance?

The core difference is simple: a rate-and-term refinance adjusts your loan terms without pulling equity from the property, while a cash-out refinance increases your loan balance so you receive the excess as liquid capital. This distinction affects everything from qualifying requirements to interest rates to your long-term financial position.

With a rate-and-term refinance, the new loan amount equals the remaining balance on your current mortgage (or less). Lenders view this as lower risk because you are not increasing leverage on the property. As a result, rate-and-term loans typically qualify for higher maximum LTV ratios (75% to 80% vs. 65% to 75% for cash-out), lower interest rates (often 0.25% to 0.75% cheaper), and less stringent reserve requirements.

A cash-out refinance lets you tap into the equity you have built through appreciation or principal paydown. If your property is worth $3 million and you owe $1.5 million, a cash-out refinance at 70% LTV could provide a new loan of $2.1 million, giving you $600,000 in proceeds after paying off the existing debt. This capital can fund renovations, acquisitions, or other investments, but you are taking on more debt, higher rates, and greater risk.

When to Choose Rate-and-Term:

• Your current rate is significantly above market rates
• Your adjustable-rate loan is approaching a reset date
• Your loan is maturing and you need to refinance into a new term
• You want to switch from a shorter amortization to a longer one
• You do not need to access property equity right now

When to Choose Cash-Out:

• You need capital for property improvements or a new acquisition
• You want to consolidate multiple loans or debts
• Your property has appreciated significantly and you want to redeploy equity

For many commercial property owners, the rate-and-term refinance is the smarter first move. It reduces your carrying costs without adding risk. If you later need capital, you can always pursue a cash-out refinance or a bridge loan. Use our commercial mortgage calculator to model how different rate and term scenarios affect your monthly payments.

What Are the Current Rates for Commercial Rate-and-Term Refinancing?

Commercial rate-and-term refinance rates in early 2026 range from 5.5% to 8.5% depending on the loan program, property type, leverage, and borrower strength. This represents a meaningful improvement from the 7.0% to 9.5% range that prevailed through much of 2023 and early 2024, creating a favorable window for borrowers with maturing loans or above-market rates.

Agency loans (Fannie Mae and Freddie Mac) offer the most competitive rates for multifamily properties, ranging from 5.8% to 7.0% with terms up to 30 years and non-recourse structures. CMBS and conduit loans price between 6.5% and 7.5% for stabilized commercial assets across all property types with 5 to 10 year fixed terms. Bank and credit union loans range from 6.5% to 8.0% and offer the most flexibility in structure. SBA 504 loans provide below-market fixed rates of 6.0% to 7.0% for 20 to 25 year terms, exclusively for owner-occupied properties with up to 90% financing. Learn more about how SBA loans work for commercial property. Life insurance company loans offer the lowest rates at 5.5% to 6.5% but require 60% to 65% LTV and premium asset quality.

Your specific rate depends on LTV ratio, DSCR strength, property type and location, loan size, and borrower experience. To lock in the best rate, apply with multiple lenders simultaneously and compare term sheets side by side. Rate differences of even 0.25% translate to significant savings over a 5 to 10 year term. Contact our team for a current rate quote tailored to your specific property and situation.

When Is the Right Time to Pursue a Rate-and-Term Refinance?

The right time to refinance is when the savings from a lower rate or better terms exceed the total cost of refinancing, including closing costs, prepayment penalties, and any rate lock fees. As a general rule, a rate reduction of at least 0.50% to 0.75% on a commercial mortgage typically justifies the refinance after accounting for all costs.

Several specific scenarios make rate-and-term refinancing particularly compelling in 2026:

Loan maturity approaching. If your commercial mortgage matures in the next 6 to 18 months, you need to refinance regardless. Starting the process early gives you leverage to negotiate better terms and avoid the pressure of a looming balloon payment. Many borrowers who took out 5-year loans in 2020 or 2021 at historically low rates are now facing maturity.

Adjustable rate reset. Borrowers with adjustable-rate mortgages approaching a rate adjustment should evaluate locking in a fixed rate. If your ARM is set to reset from 6.5% to 8.0% or higher, a fixed-rate refinance eliminates future rate uncertainty and may reduce your payments.

Significant rate improvement available. If market rates have dropped 0.75% or more below your current rate, the math often favors refinancing. On a $3 million loan, a 1.0% rate reduction saves approximately $30,000 per year. Over a 7-year term, that is $210,000 in total savings.

Property has appreciated or stabilized. If your property value has increased or your NOI has grown since you originated the current loan, you may qualify for better terms. A lower LTV ratio and higher DSCR both improve your negotiating position.

Before pulling the trigger, calculate the break-even point. Divide your total refinancing costs (typically 1% to 3% of the loan amount for closing costs, plus any prepayment penalty) by your monthly savings to determine how many months it takes to recoup the investment. If you plan to hold the property longer than the break-even period, the refinance makes financial sense. Use our DSCR calculator to verify that your property income supports the new loan terms.

What Are the Requirements to Qualify for a Rate-and-Term Refinance?

Qualification centers on three pillars: the property must generate sufficient income, the loan-to-value ratio must fall within program limits, and the borrower must demonstrate financial strength and creditworthiness. Meeting all three pillars positions you for the best rates and terms available.

Debt Service Coverage Ratio (DSCR) is the single most important qualification metric. Lenders require the property's net operating income to cover annual debt service by a specific margin. For rate-and-term refinances, minimum DSCR requirements typically range from 1.20x to 1.35x depending on property type and loan program. Multifamily and industrial properties enjoy the most lenient requirements (1.20x to 1.25x), while hospitality properties face stricter standards (1.35x to 1.50x). Calculate your DSCR using our DSCR calculator before applying.

Loan-to-Value (LTV) limits are more favorable than for cash-out. Most programs cap LTV at 75% for commercial properties, with agency multifamily allowing up to 80% and SBA 504 permitting up to 90% for owner-occupied properties.

Credit Score Requirements generally require a minimum of 660 for most commercial refinance options, with 680 or higher preferred. SBA loans accept 650 in some cases. Bridge and DSCR programs may work with 620 or above at higher rates.

Seasoning Requirements of 6 to 12 months are typical. SBA loans usually require 2 years of property operation. Net Worth and Liquidity standards call for net worth equal to the loan amount and 6 to 12 months of post-closing reserves. Review the full breakdown of commercial loan down payment requirements for equity expectations across programs.

What Does the Rate-and-Term Refinance Process Look Like Step by Step?

The process typically takes 45 to 90 days from application to closing, depending on the loan program and complexity. Understanding each phase helps you prepare documentation in advance and avoid delays.

Step 1: Evaluate Your Current Loan (Week 1). Review your existing rate, remaining term, maturity date, and prepayment provisions. Request a payoff statement that includes the exact balance, per diem interest, and any prepayment penalty.

Step 2: Define Refinance Goals (Week 1). Clarify whether you seek a lower rate, a longer term, a switch from adjustable to fixed, or a combination. If reducing monthly payments is the priority, a longer amortization may matter more than the absolute lowest rate.

Step 3: Gather Documentation (Weeks 1 to 2). Compile personal financial statements, two years of tax returns, trailing 12-month property operating statement, current rent roll with lease abstracts, existing loan documents, and insurance certificates.

Step 4: Submit Applications and Compare (Weeks 2 to 3). Apply with multiple lenders. Expect term sheets within 5 to 10 business days. Compare offers on rate, term, amortization, prepayment structure, recourse provisions, and closing costs. Do not focus exclusively on rate; the total cost of capital over your hold period matters more.

Step 5: Underwriting (Weeks 3 to 8). The lender orders a commercial appraisal ($3,000 to $10,000), Phase I environmental ($2,000 to $4,000), and possibly a property condition report ($3,000 to $6,000). The underwriting team analyzes property income, borrower financials, and market conditions.

Step 6: Closing (Weeks 8 to 12). After underwriting approval, the lender issues a commitment letter. Your attorney reviews documents, title insurance is arranged, and the new loan funds to pay off the existing mortgage.

Contact Clearhouse Lending early in the process to get a preliminary assessment before investing in third-party reports.

What Costs Should You Expect with a Rate-and-Term Refinance?

Total closing costs typically run 1% to 3% of the loan amount, plus any prepayment penalty on the existing loan. On a $2 million refinance, expect $20,000 to $60,000 in closing costs before factoring in prepayment penalties.

Key cost components include appraisal fees ($3,000 to $10,000), legal fees for borrower and lender counsel combined ($8,000 to $23,000), title insurance and recording ($3,000 to $10,000), environmental and property reports ($5,000 to $10,000), and origination fees (0.5% to 1.0% of the loan amount).

Prepayment penalties on your existing loan represent the largest potential cost. Common structures include yield maintenance (3% to 8% of balance), defeasance (similar range, requires purchasing Treasury securities), and step-down schedules (typically 5%, 4%, 3%, 2%, 1% declining annually). Calculate the exact penalty before committing, and time your refinance to coincide with penalty reduction when possible.

Explore permanent loan programs that offer flexible prepayment structures on the new loan to avoid repeating the same constraint.

How Much Can You Actually Save with a Rate-and-Term Refinance?

Savings depend on three variables: the size of the rate reduction, the loan balance, and the remaining term. Even modest rate improvements compound into substantial savings over a commercial mortgage's life.

A borrower with a $3 million mortgage at 7.5% on a 25-year amortization pays approximately $22,100 per month. Refinancing to 6.5% reduces the payment to approximately $20,300, saving $1,800 per month or $21,600 per year. Over a 10-year hold, that is $216,000 in total savings, well above typical closing costs of $45,000 to $60,000.

For a $5 million loan with a 2.0% rate reduction (8.0% to 6.0%), annual savings jump to approximately $102,000. Over 7 years, total savings exceed $714,000.

Term Extension Savings. Switching from a 20-year to a 30-year amortization on a $3 million loan at 6.5% reduces monthly payments by approximately $3,400. The tradeoff is slower equity buildup, but improved cash flow may be what the property needs.

Use our commercial mortgage calculator to model your specific scenario with different rate and term combinations.

What Property Types Qualify for Rate-and-Term Refinancing?

Virtually every income-producing commercial property type qualifies, though rates, terms, and requirements vary across asset classes. Lenders evaluate each type based on income stability, tenant quality, and market conditions.

Multifamily (5+ units) receives the most favorable terms with agency LTVs up to 80% and rates from 5.8%. Industrial and warehouse properties are a lender favorite due to e-commerce demand, with competitive rates and 75% LTV. Retail faces scrutiny, but grocery-anchored and necessity-based centers qualify well. Office is the most challenging sector in 2026, though medical office buildings remain strong. Hospitality faces the strictest standards with DSCR minimums of 1.35x to 1.50x and LTV caps of 60% to 70%. Self-storage has become a preferred asset class with terms comparable to multifamily for stabilized facilities.

Regardless of property type, lenders evaluate the specific asset's performance. A strong office building with 95% occupancy may receive better terms than a poorly managed multifamily property. Focus on presenting your property's individual strengths when applying.

What Mistakes Should You Avoid During a Commercial Refinance?

The most costly mistake is failing to account for prepayment penalties on your existing loan, which can turn a profitable refinance into a loss. Beyond that, several pitfalls commonly derail refinance transactions.

Not shopping multiple lenders. Rate differences of 0.50% to 1.00% between lenders are common. Request term sheets from at least three to five sources including banks, credit unions, and CMBS shops.

Ignoring the full cost structure. A 6.5% rate with 1.5% in fees may cost more over your hold period than 6.75% with 0.5% in fees. Compare total cost of capital, not just the rate.

Waiting too long before maturity. Starting less than 90 days before maturity weakens your negotiating position. Begin exploring options 9 to 12 months ahead.

Inadequate documentation. Incomplete financial records slow underwriting and result in less favorable terms. Ensure rent rolls are current and operating statements are accurate before approaching lenders.

Overlooking rate lock timing. Most lenders offer 30 to 60 day locks at no cost. Lock early in a declining rate environment to protect your savings.

Ignoring loan structure beyond the rate. Amortization period, prepayment flexibility, recourse provisions, and supplemental loan options all affect the total value of your refinance.

Ready to secure the best refinance terms for your property? Get a free consultation from our team to walk through your specific situation and options.

Frequently Asked Questions About Rate-and-Term Refinancing?

What is the minimum loan amount for a commercial rate-and-term refinance? Most lenders set minimums between $250,000 and $1 million. SBA loans start around $250,000, while CMBS and agency programs typically require $1 million or more.

Can I refinance if I have a prepayment penalty on my current loan? Yes, but factor the penalty into your cost-benefit analysis. If the penalty is $50,000 and annual savings are $25,000, break-even is two years. Many borrowers wait until the penalty expires or declines.

How soon after purchasing can I refinance? Most lenders require 6 to 12 months of seasoning. Some programs, particularly bridge loan exits into permanent financing, may allow earlier refinancing. SBA 504 typically requires 2 years of operation.

Do I need a new appraisal for a rate-and-term refinance? Yes. Virtually all commercial refinances require a current appraisal by a licensed MAI appraiser, costing $3,000 to $10,000 depending on property type and complexity.

Can I switch from recourse to non-recourse through refinancing? Yes. CMBS, agency, and some life insurance company loans offer non-recourse structures. This is particularly valuable for borrowers looking to limit personal liability exposure.

What DSCR do I need for a rate-and-term refinance? Minimum DSCR requirements range from 1.20x to 1.35x depending on property type. Multifamily may qualify at 1.20x, while office and hospitality typically need 1.30x or higher. Use our DSCR calculator to check your coverage ratio.

Is a rate-and-term refinance tax deductible? Mortgage interest remains fully deductible as a business expense. Closing costs and origination fees are amortized over the loan term. Consult your CPA on prepayment penalty treatment, which may be deductible in the year paid.

What happens if my property value has decreased since the original loan? You may not qualify at the same loan amount if LTV exceeds program limits. Options include bringing cash to closing, accepting less favorable terms, or exploring a bridge loan while values recover.

Sources: Federal Reserve Commercial Real Estate Lending Survey, Mortgage Bankers Association Commercial and Multifamily Origination Data, Trepp CMBS Research, National Association of Realtors Commercial Market Insights, Federal Reserve Bank of St. Louis Economic Data (FRED), Fannie Mae and Freddie Mac Multifamily Lending Guidelines, U.S. Small Business Administration 504 Loan Program Data.