A successful CRE refinance starts 9 to 12 months ahead of maturity, with prepayment math priced cold, capital-source quotes pulled in parallel for rate-and-term, cash-out, and hold-to-maturity scenarios, and a fallback plan if sized proceeds fall short. Time pressure compounds against the borrower; planning early preserves optionality.
Step one: timing, start 9 to 12 months before maturity
Refis fail most often when the borrower starts 60 to 90 days before maturity and discovers that current pricing does not size to the existing balance, that the chosen lender options has tightened, or that prepay penalties on the existing loan are larger than expected. Per the MBA Mortgage Maturities Outlook, a record volume of CRE debt matures across 2026 and 2027, and lender appetite shifts week-to-week as refi pipelines fill.
Nine to twelve months out, the borrower can run a defeasance or yield-maintenance estimate, model the sized refi proceeds at current rates, and decide between rate-and-term refi, cash-out refi, hold-to-maturity, and partial paydown plus extension well before time pressure constrains the choices.
Step two: four-scenario quote
Rate-and-term refi: same proceeds, new rate, no cash-out. Useful when the borrower simply wants to extend duration with the existing capital structure.
Cash-out refi: pull equity out by sizing to current LTV or debt-yield max. Useful when the asset has appreciated or NOI has grown enough to support a larger loan at current rates.
Partial paydown plus refi: borrower contributes equity to fund a smaller loan that sizes cleanly under current rates. Useful when the existing balance exceeds what current rates support.
Hold-to-maturity plus extension: keep the existing loan, negotiate a 6- to 24-month extension, refinance later when conditions improve. Useful when the prepay penalty is high and current rates are unfavorable.
Step three: sizing under current rates
The same three sizing tests as acquisition apply: LTV on current as-is appraisal, debt-yield on underwritten NOI, DSCR at the new rate. The bind on a refinance is more often debt-yield than LTV because cap rates have moved more than rents have, so the same NOI now supports a smaller loan even if the property value is roughly flat.
On a $25M maturing loan with $1.6M NOI and $25M current value: LTV 70% caps at $17.5M; debt-yield 9% caps at $17.8M; DSCR 1.30x at 6.25% caps at $18.1M. The borrower faces a $7.5M shortfall that must be filled with equity, paydown, or supplemental capital.
Step four: prepayment math
Defeasance on a CMBS loan: replace the real estate collateral with a Treasury or agency portfolio that pays the same scheduled cash flows. Cost is the spread between the loan balance and the replacement portfolio cost, which depends on the gap between the loan rate and current Treasury yields. When current Treasuries are below the loan rate, defeasance is expensive; when above, it can be near zero.
Request the contractual prepayment calculation and a current estimate. Yield maintenance and defeasance use different mechanics; neither is universally cheaper.
Step-down prepay on agency loans: a published schedule of prepayment fees that decline over the loan term, often expressed as a percentage of balance (e.g. 5%, 4%, 3%, 2%, 1% over the first five years, then open). Easier to model and far cheaper than defeasance or yield maintenance in most rate environments.
Step five: capital-source selection at refinance
Stabilized multifamily: Fannie DUS, Freddie Optigo, HUD 223(f), and bank perm in parallel. Stabilized non-multifamily: life co and CMBS in parallel. Bridge takeout for a value-add asset that did not stabilize on schedule: bridge from a debt fund with a clear takeout-to-perm story.
Cash-out refis push the lender options toward higher-leverage capital. Sponsors comfortable with bank or CMBS execution at 70% to 75% LTV and accepting standardized prepay structures typically optimize the cash-out math. Sponsors prioritizing prepayment flexibility may give up cash-out to retain the option.
Step six: the 'cash-in refi' fallback
When sized proceeds fall short of the existing balance and an extension is not available, the borrower writes a cash-in equity check at refinancing. This is increasingly common in 2026 on loans originated at 2020 to 2022 rates and proceeds. The math is straightforward: equity check equals existing balance minus sized refi proceeds plus closing costs and prepay.
The strategic question is whether the borrower should write the check or sell the asset. The check makes sense when the after-tax IRR on the remaining hold beats the alternatives; otherwise sale or partial recap may dominate. Modeling both paths against the sponsor's overall portfolio is the key decision.
Frequently asked questions
When should a borrower consider an extension instead of a refi?
When the existing rate is materially below current market and the asset still produces strong cash flow at the existing payment. Extensions delay the rate reset, preserve optionality, and avoid cash-in equity. Most lenders quote 6 to 24 month extensions if the borrower is current.
How does cash-out treatment differ across lender types?
Agency multifamily and CMBS quote cash-out openly, sized to debt-yield and LTV maxes. Life cos prefer rate-and-term refis and quote cash-out conservatively. Banks vary widely, with relationship-driven banks typically more open to cash-out for known sponsors.
What if the existing loan has a prepayment lockout?
Most loans have a defined open-prepayment window (typically the last 90 days of term). Refinancing inside that window avoids prepay penalties entirely. Outside the window, the borrower compares prepay cost to the savings or proceeds gained from refinancing now.
Sources
- Commercial/Multifamily Mortgage Maturities Outlook · Mortgage Bankers Association · 2026-02
- Quarterly Survey of Commercial/Multifamily Mortgage Bankers Originations · Mortgage Bankers Association · 2026-Q1
- Financial Stability Report · Board of Governors of the Federal Reserve System · 2025-11
- Treasury Constant Maturity Series (DGS5, DGS10) · Federal Reserve Bank of St. Louis (FRED) · weekly