When to Refinance Commercial Property: Key Signals

How Do You Know When to Refinance Commercial Property?

The right time to refinance commercial property comes down to math, not guesswork. If your current loan carries a rate that is 0.75% or more above today's market rates, if your property value has grown significantly, or if your loan maturity is approaching within 12 to 18 months, those are clear signals to start evaluating a commercial refinance. Understanding when to refinance commercial property can save you hundreds of thousands of dollars over the life of your loan while freeing up capital for additional investments.

In 2026, commercial real estate borrowers face a unique window of opportunity. With over billion in CRE loans maturing between 2024 and 2026, lenders are actively competing for refinance business. At the same time, rates have stabilized after the aggressive Fed tightening cycle of 2022 and 2023, creating favorable conditions for borrowers who locked in at higher rates during that period. Whether you own multifamily, retail, office, or industrial property, this guide breaks down the eight key signals that tell you it is time to refinance, along with the math you need to make a confident decision.

What Are the Top Signals That It Is Time to Refinance?

The strongest refinance signals fall into three categories: rate-driven, property-driven, and loan-structure-driven. Each one can independently justify a refinance, and when multiple signals align, the case becomes even more compelling.

Rate-driven signals include a meaningful drop in market rates compared to your current loan, or a shift from variable to fixed rates when you want payment certainty. A general rule of thumb is that a rate reduction of 0.75% or more on a commercial mortgage makes refinancing worth serious consideration, though the exact threshold depends on your loan balance and remaining term.

Property-driven signals include significant appreciation in property value (typically 15% or more), meaningful growth in net operating income due to rent increases or expense reduction, and improved occupancy rates that strengthen your DSCR ratio. These improvements can qualify you for better loan terms, lower rates, or cash-out proceeds.

Loan-structure signals include an approaching balloon payment or maturity date, the expiration of a prepayment penalty window, the desire to switch from recourse to non-recourse financing, or the need to extend your amortization period to improve monthly cash flow.

The most successful commercial property owners do not wait for a single dramatic trigger. They continuously monitor these signals and act when the math supports it. Use our commercial mortgage calculator to model different scenarios based on your current loan terms and today's available rates.

How Do You Calculate the Break-Even Point on a Commercial Refinance?

Your break-even point is the number of months it takes for your cumulative monthly savings to exceed your total refinance costs. Calculate it by dividing your total closing costs by your monthly payment savings. If the break-even falls well within your expected hold period, the refinance makes financial sense.

Here is the formula:

Break-Even (months) = Total Refinance Costs / Monthly Payment Savings

For example, if refinancing a million commercial mortgage from 7.25% to 6.25% saves you ,340 per month and your total closing costs are ,000, your break-even is approximately 24 months (,000 / ,340). If you plan to hold the property for at least five more years, you would save roughly ,400 beyond the break-even point over the remaining hold period.

Several factors affect your break-even calculation:

• Loan balance matters significantly. Larger loans produce bigger monthly savings from the same rate reduction, which shortens the break-even period. A 1% rate drop on a million loan saves roughly ,540 per month, but the same rate drop on a million loan saves only .
• Closing costs vary by lender and loan type. Agency loans (Fannie Mae, Freddie Mac) typically have lower origination fees than CMBS or bank loans. SBA refinances may have subsidized fees. Always get detailed cost estimates from multiple lenders.
• Remaining term impacts total savings. A refinance with a 24-month break-even makes sense if you plan to hold for 7 more years but not if you plan to sell in 3 years.
• Prepayment penalties add to costs. If your current loan has a yield maintenance or defeasance requirement, factor that cost into your total refinance expenses before calculating break-even.

To get a precise break-even analysis for your property, contact our refinance specialists for a no-obligation review of your current loan and available options.

What Role Do Prepayment Penalties Play in Refinance Timing?

Prepayment penalties are often the single biggest factor in refinance timing. These penalties can range from 1% to 10% of your outstanding loan balance, and understanding your specific penalty structure is essential before committing to a refinance. In many cases, the smartest move is to time your refinance around the penalty schedule.

Commercial mortgages use several common prepayment penalty structures, each with different strategic implications:

Yield maintenance is the most restrictive and expensive penalty type. It compensates the lender for the interest income they would lose if you pay off the loan early. The cost is calculated using Treasury rates, which means the penalty actually decreases as Treasury yields rise. In a rising rate environment, yield maintenance penalties shrink. In a falling rate environment (exactly when you want to refinance), the penalty increases.

Defeasance works differently. Instead of paying a penalty, you purchase a portfolio of Treasury securities that replicate the remaining cash flows of your loan. This replaces the collateral while the loan stays on the lender's books. Defeasance costs typically range from 2% to 8% of the outstanding balance and vary significantly based on Treasury rates.

Step-down penalties follow a declining schedule, such as 5% in year one, 4% in year two, down to 1% in year five. This is the most borrower-friendly structure because you can clearly plan when the penalty becomes low enough to justify refinancing.

Strategy for navigating prepayment penalties:

1. Review your loan documents to identify your exact penalty type and schedule
2. Calculate the penalty cost at various points in time
3. Add the penalty to your total refinance costs in the break-even analysis
4. Consider whether waiting 6 to 12 months for a lower penalty saves more than the monthly payment reduction you would capture by refinancing today

Sometimes, paying the prepayment penalty still makes financial sense. If rates have dropped enough or your property value has increased enough, the long-term savings from a new loan can far exceed the penalty cost. A bridge loan can also provide interim financing while you navigate the transition. For more on bridge loan strategies, read our guide on what is a commercial bridge loan.

How Does the Interest Rate Environment Affect Your Refinance Decision?

The interest rate environment directly shapes both your refinance urgency and available options. In 2026, we are in a transitional rate environment where the Federal Reserve has moderated its stance after the aggressive tightening cycle of 2022 and 2023, creating opportunities for borrowers who locked in at peak rates.

Here is the current rate landscape for commercial refinancing:

Key factors to understand about the rate environment:

Federal Reserve policy drives short-term rates and influences the broader lending market. The federal funds rate, after reaching its cycle peak in 2023, has seen measured reductions. This has brought commercial mortgage rates down from their highs but they remain well above the historic lows of 2020 and 2021.

The yield curve matters for term selection. When the yield curve is flat or inverted (short-term rates near or above long-term rates), locking in a long-term fixed rate becomes more attractive because you are not paying a significant premium for rate certainty. In 2026, the yield curve has normalized, meaning longer terms carry moderately higher rates.

Lender competition is a tailwind for borrowers right now. With the maturity wall pushing hundreds of billions in loans toward refinance, lenders across all categories are competing aggressively for quality deals. This competition drives tighter spreads and better terms for well-positioned borrowers.

Rate direction uncertainty creates a strategic dilemma. If you believe rates will drop further, waiting could save money. But if rates move higher, you could miss your window. The general principle is this: if today's rates already make your refinance math work and your break-even is within your hold period, locking in the savings is usually better than speculating on future rate movements.

For properties that need repositioning before they qualify for the best permanent rates, a bridge loan can provide short-term financing while you stabilize occupancy or complete renovations.

What Should You Consider When Your Loan Maturity Is Approaching?

Loan maturity is the most urgent refinance trigger because failing to refinance or pay off a maturing loan can result in default. Start your refinance planning at least 12 to 18 months before maturity to give yourself adequate time for underwriting, appraisals, and lender selection. Waiting until the last few months creates desperation pricing and limits your negotiating leverage.

An estimated billion in commercial real estate loans are maturing during this period, many originated at rates significantly below current market levels. Borrowers refinancing these loans face higher rates, which can reduce cash flow and require additional equity.

Here is how to prepare for a maturing loan:

12 to 18 months before maturity: Begin gathering updated financials, rent rolls, and property condition reports. Request preliminary term sheets from multiple lenders to understand your options. This is also the time to address any deferred maintenance or occupancy issues that could hurt your qualification.

6 to 12 months before maturity: Select your preferred lender and begin formal underwriting. Order the appraisal, environmental report, and property inspection. Lock your rate if your lender offers a rate lock during the application process.

3 to 6 months before maturity: Complete due diligence, finalize loan documents, and prepare for closing. Coordinate with your current lender on the payoff process and any release of collateral.

What if your property does not qualify for permanent financing? If your DSCR is below 1.20x or occupancy is under 85%, you may not qualify for a permanent loan at favorable terms. In this case, consider a bridge loan to buy time while you stabilize the property. Our guide on commercial loan down payment requirements explains equity expectations across different loan types.

Do not wait for your lender to contact you about maturity. Take control of the process early and reach out to Clear House Lending to discuss your refinance options well before your maturity date.

Should You Choose a Rate-and-Term Refinance or a Cash-Out Refinance?

The answer depends on your investment strategy. A rate-and-term refinance is the right choice when your primary goal is reducing your interest rate, changing your loan structure, or extending your amortization. A cash-out refinance is better when you have significant equity and want to extract capital for renovations, acquisitions, or other investments.

Rate-and-term refinance replaces your existing loan with a new one at better terms without increasing the principal balance. This works best when rates have dropped meaningfully, when you want to convert from variable to fixed, or when you need to extend maturity. Qualification tends to be simpler because you are not increasing leverage.

Cash-out refinance replaces your existing loan with a larger one, and you receive the difference at closing. Most lenders allow cash-out up to 70 to 75% LTV. The proceeds are not taxable (they are loan proceeds, not income), making this a tax-efficient way to access capital. However, your property must generate enough NOI to support the larger payment.

When to consider cash-out:

• You have equity exceeding 40% of property value and want to deploy capital elsewhere
• You need funds for property improvements that will increase NOI and value
• You want to acquire additional properties using the extracted equity
• You have high-interest debt elsewhere that can be consolidated at a lower commercial mortgage rate

Use our DSCR calculator to check whether your property's NOI supports the increased debt service from a cash-out refinance. For SBA-eligible properties, owner-occupied refinances may allow up to 90% LTV.

What Documents and Qualifications Do You Need to Refinance?

You need a complete financial picture of both the borrower and the property. Lenders underwrite commercial refinances based on the property's income-generating ability, the borrower's financial strength, and the condition and value of the real estate. Having your documentation organized before you apply speeds up the process and strengthens your negotiating position.

Property documentation: trailing 12-month operating statements, current rent roll with lease expirations, copies of executed leases, property tax bills, insurance declarations, capital expenditure history, and a property condition report.

Borrower documentation: personal financial statements for all guarantors, two to three years of tax returns, schedule of real estate owned, entity documents, bank statements (two to three months), and a resume of real estate experience.

Property metrics lenders evaluate: DSCR of 1.25x or higher, LTV of 65 to 75%, occupancy of 85 to 90%+ for at least 90 days, and credit scores of 680+.

The refinance timeline varies by loan type. Agency loans close in 45 to 60 days, bank loans take 30 to 60 days, CMBS loans require 60 to 90 days, and bridge loans can close in 14 to 21 days.

What Mistakes Should You Avoid When Refinancing Commercial Property?

The most common mistake is waiting too long, especially when a balloon payment or maturity date is approaching. Beyond timing, borrowers frequently underestimate closing costs, overlook prepayment penalties, and fail to shop multiple lenders. Avoiding these mistakes can save you tens of thousands of dollars.

Mistake 1: Focusing only on rate. Origination fees, closing costs, penalty structures, and amortization schedules all affect the true cost. A loan at 6.50% with 2 points may cost more over its life than one at 6.75% with 1 point and a step-down penalty.

Mistake 2: Not shopping multiple lenders. Getting term sheets from three to five lenders gives you leverage to negotiate and ensures you find the best overall package.

Mistake 3: Ignoring the break-even calculation. If your break-even extends beyond your hold period, the refinance destroys value. Always run the math before committing.

Mistake 4: Neglecting property preparation. Spending 6 to 12 months reducing vacancy, increasing rents, and addressing deferred maintenance before refinancing can produce meaningfully better terms.

Mistake 5: Missing the prepayment penalty window. Review your loan documents annually and calendar key penalty step-down dates so you are not surprised by costly penalties.

Mistake 6: Underestimating the timeline. Commercial refinances take 30 to 90 days. Starting weeks before a balloon payment creates desperation pricing.

Ready to explore your refinance options? Contact Clear House Lending for a no-obligation analysis of your current loan and potential savings.

Frequently Asked Questions About Refinancing Commercial Property?

How soon can you refinance a commercial property after purchasing it?

Most lenders require a seasoning period of 6 to 12 months after purchase before they will consider a refinance. Some bridge lenders and portfolio lenders may refinance sooner, particularly if the property has undergone significant value-add improvements. Agency programs (Fannie Mae, Freddie Mac) typically require 12 months of seasoning.

Can you refinance a commercial property with low occupancy?

Standard permanent loan programs require 85 to 90% occupancy for at least 90 days. If your property is below that threshold, a bridge loan provides short-term financing while you stabilize occupancy. Once the property reaches target occupancy, you refinance into a permanent loan at more favorable terms.

What DSCR do you need to refinance a commercial property?

Most permanent loan programs require a minimum DSCR of 1.20x to 1.25x. Agency multifamily loans require 1.20x to 1.25x, CMBS loans typically require 1.25x to 1.30x, and bank loans range from 1.20x to 1.35x. Use our DSCR calculator to check your property's ratio.

How much does it cost to refinance a commercial property?

Total refinance closing costs typically range from 1% to 3% of the loan amount. On a million loan, expect to pay ,000 to ,000 in appraisal, environmental, title, legal, and origination fees. Add any prepayment penalty from your existing loan to get the total cost of refinancing.

Is it worth refinancing for a 0.5% rate reduction?

It depends on your loan balance and remaining hold period. On a million loan, a 0.5% rate drop saves approximately per month. If your closing costs are ,000, the break-even is roughly 53 months (over 4 years). For larger loans, the same rate drop produces a faster break-even, making it more likely to be worthwhile. Generally, 0.75% or more is the threshold where refinancing clearly makes sense.

Can you refinance from a recourse loan to a non-recourse loan?

Yes, this is one of the most common reasons for commercial refinancing. Many borrowers start with recourse bank loans or bridge loans and refinance into non-recourse agency or CMBS loans once the property stabilizes. Non-recourse loans limit the lender's recovery to the property itself, protecting your personal assets.

What happens if you cannot refinance before your loan matures?

If you cannot refinance before maturity, you face several options: negotiate a loan extension with your current lender (typically at a higher rate and with extension fees), sell the property to pay off the loan, bring in additional equity to qualify for a new loan, or secure a bridge loan to buy additional time. The worst outcome is defaulting on the matured loan, which is why early planning is essential.

Should you refinance a commercial property in a rising rate environment?

If your current loan carries a variable rate and rates are rising, refinancing into a fixed-rate permanent loan provides payment certainty and protects you from further increases. Even if fixed rates are slightly higher than your current variable rate, locking in predictable payments has significant value for cash flow planning and risk management.

Sources: Federal Reserve Bank of New York, Mortgage Bankers Association, CBRE Research, Trepp CRE Data, National Association of Realtors Commercial Division, CoStar Group, Clear House Lending proprietary data.