Glossary
Rate and term refi (limited cash-out)
A rate and term refi pays off your existing loan and closing costs with little or no cash to you. It changes the rate, the term, or both, instead of pulling equity out.
Conventional lenders often call it a limited cash-out refi. Investors use it to swap a short-term hard money loan for a long-term loan when a cash-out refi is not allowed yet.
How it works
The new loan covers the payoff and closing costs. Any cash back is small. Run The Deal models conventional limited cash-out with cash back capped at the lesser of 2% of the new loan or $2,000.
- Hard money payoff
- $120,000
- Refi closing costs
- $4,000
- Loan needed to cover both
- $124,000
- Cash back cap (lesser of 2% or $2,000)
- $2,000
2% of $126,000 is $2,520, so the $2,000 cap applies. Illustrative only; rules vary by lender.
When it fits
- Your acquisition loan is too new for a conventional cash-out. Run The Deal models a 12-month existing lien rule for that program.
- You want out of a high-rate short-term loan before it matures.
- Your cash in the deal is small enough that a cash-out would not add much.
What to watch
Your cash left in stays in the deal. You may be able to do a cash-out refi later once seasoning is met, but that means a second set of closing costs.
The BRRRR calculator shows rate and term next to cash-out options so you can compare.
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