Should I do a supplemental loan or a full refinance on my agency multifamily?

When each path produces the better outcome

Supplemental loan structure (Fannie DUS / Freddie Optigo): a second-position loan from the same agency lender that takes additional equity out of the property without disturbing the senior loan. Combined senior plus supplemental typically caps at 75% to 80% LTV with combined DSCR test. Supplemental rates are typically 50 to 100 bps above the senior at the time of supplemental issuance.

Supplemental wins when: the senior loan has 3 to 7 years of yield-maintenance remaining, current rates are at or below the senior coupon, the borrower's cash-out target is achievable within combined LTV limits, and the borrower is happy with the existing senior loan structure.

Full refi wins when: the senior is in or approaching its open prepay window (last 90 days), the cash-out target exceeds combined supplemental capacity, the borrower wants a single new loan with reset IO and longer term, or the existing senior structure is operationally costly (covenants, recourse) and the borrower wants to replace it.

Worked example: keeping the $20 million senior at 5.5% ($1.10 million a year) and adding a $4 million supplemental at 6.25% ($250,000) costs $1.35 million a year. Refinancing $24 million at 5.75% costs $1.38 million a year, about $30,000 more, plus the $800,000 yield-maintenance estimate and closing costs. On these rates the supplemental is cheaper.

Decision factors beyond the math: relationship continuity with the agency lender (supplemental preserves it; refi may go to a different lender), structural preferences in the new loan, view on rate path (locking in current rates with full refi vs. preserving optionality with supplemental).