Apartment Refinance Calculator

What is a refinance gap?

A refinance gap is the difference between what it costs to retire your current loan and what a new lender will lend against the property today. It shows up most on loans written when rates were low. The same NOI supports far less debt at 6% than at 3.5%, so a property whose value held up can still come up short at maturity.

A lender sizes a refinance three ways and lends the lowest result:

• Loan-to-value (LTV): appraised value times the maximum LTV. Agency programs go up to 80%; cash-out refinances are usually capped lower.
• Debt service coverage (DSCR): NOI divided by the minimum DSCR, then divided by the annual loan constant for the rate and amortization. At 1.25x, every $1.25 of NOI supports $1.00 of annual debt service. See the DSCR calculator.
• Debt yield: NOI divided by the lender's minimum debt yield. Many CMBS and bank lenders set one; agency programs usually rely on DSCR and LTV. See the debt yield calculator.

When the new rate is well above the old one, the DSCR limit falls fastest and is usually the one that binds.

Refinance gap worksheet

Appraised value ($)Net operating income ($/yr)Current loan payoff ($)Exit cost (% of payoff)New loan rate (%)Amortization (years)Maximum LTV (%)Minimum DSCR (x)Minimum debt yield (%, 0 if none)Closing costs (% of new loan)Reserves at closing ($)

Max loan by LTV

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Max loan by DSCR

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Max loan by debt yield

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New loan

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Binding limit

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Cash needed to close

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Refinance gap

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NOI to close with no cash in

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Value to close with no cash in

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Estimates only. A lender sizes the loan on its own underwritten NOI and appraisal.

Worked example

An apartment building appraised at $10,000,000 earns NOI of $600,000. The loan pays off at $7,200,000 plus a 1% exit fee. The new lender quotes 6.25% on 30-year amortization with limits of 75% LTV, 1.25x DSCR and an 8% debt yield, charges closing costs of 1.5% of the new loan, and wants $50,000 in reserves.

The property is worth plenty, and LTV and debt yield would both allow a loan above the payoff. DSCR is the problem. To close with no new cash, NOI would need to reach about $686,540, roughly 14% above today.

Ways to close a refinance gap

• Pay down the loan. The simplest answer when the gap is small next to the equity in the property.
• Raise NOI first. If the current loan can be extended, a few months of higher rents or lower expenses may close the gap. The worksheet's NOI line is the target to hit.
• Use a bridge loan. Bridge lenders size on the business plan rather than in-place NOI, which buys time to lease up or renovate before permanent financing, at a higher rate.
• Add subordinate capital. Mezzanine debt or preferred equity can fill part of the gap behind the senior loan, at a higher cost than senior debt.
• Change the senior loan. HUD 223(f) allows up to 87% LTV and a 1.15x DSCR on market-rate properties with up to 35-year amortization, which supports more debt on the same NOI. The trade-off is a longer, more document-heavy close.

What this worksheet assumes

It uses a fully amortizing payment at the rate and amortization you enter. Interest-only periods raise DSCR proceeds and are not modeled. Exit costs on agency and CMBS loans are often yield maintenance or defeasance, which can be much larger than a flat fee; estimate them with the yield maintenance or defeasance calculator and enter the result as a percentage of the payoff. Lenders underwrite their own NOI, with vacancy, management fees and replacement reserves applied, and it is often lower than the owner's figure. Treat the result as a starting estimate, not a quote.

Size it by loan program

The worksheet above uses one set of limits. Each program publishes its own, and the largest loan you can get depends on which program fits your property. This panel runs your numbers under each one.

Refinance sizing by loan program

Appraised value ($)Net operating income ($/yr)Current loan payoff ($)UnitsInterest rate to test (%)Use a quote or today's index plus a spread. Every program column uses it unless you change the bank column.

Your bank's terms (edit to match a quote)

Bank: max LTV (%)Bank: min DSCR (x)Bank: amortization (years)

Largest loan that fits

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Program limits are the published maximums. Lenders often size tighter, and every loan is sized on the lender's own underwritten NOI and appraisal.

Take it offline

Prefer a spreadsheet you can save, send or change? The same math, with formulas you can see.