What is the difference between a cash-out refi and a rate-and-term refi on a CRE loan?

What changes between the two structures

Lender underwriting standards: rate-and-term is treated as a continuation of existing debt and underwritten primarily to current cash flow. Cash-out is treated as new leverage and underwritten more conservatively, tighter DSCR floors, higher debt-yield thresholds, sometimes a holding-period requirement.

Agency seasoning: Fannie DUS and Freddie Optigo require 12 months of ownership seasoning before allowing cash-out. Some agency lenders waive seasoning for sponsors with strong track records and properties acquired below market with documented value-creation.

Documentation: cash-out requires documented use of proceeds (fund the next acquisition, pay down other debt, distribute to partners, fund cap-ex). Lenders are wary of cash-out distributions that leak equity from the property without a documented purpose.

DSCR and debt-yield treatment: cash-out tests typically require 0.10x to 0.20x of additional DSCR cushion and 50 to 100 bps of additional debt-yield cushion above rate-and-term standards. The math: a property that would size to $20M as rate-and-term might size to only $18M to $19M as cash-out at the same rate.

Hidden cost of cash-out: the recovered cash typically has a long redeployment lag (6 to 18 months to find and close the next deal), but the leverage on the existing property is incurred immediately. The carry cost during redeployment can be material on large cash-outs.