How to Refinance a Commercial Mortgage

Quick Answer: Refinancing a commercial mortgage is a defined process, not a single decision. You start by pinning down exactly why you are refinancing, then verify what it costs to leave your current loan, confirm how much you can borrow against today's value, build a clean document package, shop multiple lenders, get through appraisal and underwriting, and finally close and pay off the old balance. This guide walks each step in order with realistic numbers. If you would rather skip straight to comparing offers, get matched with lenders here, or read the broader commercial real estate refinance guide first.

Step 1: Confirm Your Goal (Rate, Term, Cash-Out, or Balloon Payoff)

Every refinance starts with one question: what are you actually trying to accomplish? The answer shapes which lenders to call, which loan type fits, and how much the deal can save you. There are four common goals. A rate-and-term refinance lowers your interest rate or stretches your amortization to cut the monthly payment. A cash-out refinance increases the loan balance to return built-up equity as cash for expansion, equipment, or a partner buyout. A balloon payoff replaces a maturing balance before it comes due. And a debt consolidation refinance folds higher-cost obligations into one payment secured by the property.

Be specific here, because mixing goals quietly raises your cost. If you only need a lower payment, do not take cash out—cash-out carries a higher rate and a tighter LTV cap. If you are deciding between the two, the trade-offs are laid out in cash-out vs rate-and-term refinance. Owners weighing whether now is even the right moment should read when to refinance commercial property before going further.

Step 2: Pull Your Payoff Statement and Check Prepayment Penalties

Before you can compare the new loan to the old one, you need the real numbers on the loan you are leaving. Request a written payoff statement from your current servicer. It shows the exact balance, accrued interest, and—critically—any prepayment penalty. This single document determines whether a refinance is worth doing at all.

Commercial loans rarely let you walk away for free. Penalties usually come in one of three forms. A step-down penalty charges a declining percentage of the balance (for example 5% in year one, falling roughly a point per year). Yield maintenance makes the lender whole for lost interest and can be steep when rates have dropped. Defeasance, common on CMBS loans, requires you to buy a portfolio of securities to replace the income stream and is the most expensive and complex to unwind. If your loan carries a heavy penalty, the refinance may not pencil out yet—or it may be worth timing around the step-down schedule. If a balloon is approaching, start now; see refinancing a balloon mortgage early.

Step 3: Estimate Your Value and Equity (LTV)

How much you can borrow is governed by loan-to-value (LTV). Get a rough estimate of today's value from recent comparable sales, a broker opinion of value, or a desktop estimate, then compare it to your current balance. Rate-and-term refinances commonly reach 70-80% LTV, while cash-out is typically capped around 65-75%. Owner-occupied property usually qualifies for stronger leverage than investment property.

A quick example: if your property is worth roughly $2,000,000 and your balance is $1,200,000, you hold about 40% equity. At a 75% cash-out cap, you could potentially refinance up to $1,500,000—enough to pay off the existing loan and pull out around $300,000 before costs. If your value has slipped or your equity is thin, you may be limited to a straight rate-and-term refinance. For benchmarks on how lenders size these limits, see commercial loan LTV and down payment benchmarks. The other half of the equation is debt-service coverage (DSCR): lenders want net operating income to cover the new payment with room to spare, usually 1.20x-1.30x or higher.

Step 4: Gather the Documents Lenders Require

Slow refinances are almost always document problems, not credit problems. Building your package up front is the single highest-leverage thing you can do to close faster. Most lenders will ask for:

• The current loan payoff statement from Step 2
• Two to three years of business and personal tax returns
• Trailing 12-month and year-to-date operating statements (profit and loss)
• A current rent roll and copies of leases (for investment property)
• Entity documents—articles, operating agreement, EIN letter
• A personal financial statement and recent bank statements
• Current property insurance declarations and recent tax bills

Have these scanned and organized before you apply. Lenders also pull credit; most look for scores around 650-720+, with stronger profiles unlocking better pricing. For the full picture of what underwriters weigh, see what lenders look for in a CRE loan and the credit score you need.

Step 5: Compare Lenders and Loan Types (Bank, SBA, CMBS, Bridge)

This is where most of the savings is won or lost. Pricing varies widely across lender types, so do not anchor to your current bank's first quote. Banks and credit unions offer the most competitive conventional rates for stabilized property with strong cash flow, usually with 5-10 year terms and 20-25 year amortization. SBA 504 and 7(a) loans are strong for owner-occupied real estate, offering longer fixed terms and lower down payments—see SBA loan options. CMBS suits larger investment properties but adds defeasance and servicing complexity. Bridge loans are short-term tools for property that is not yet stabilized; see commercial bridge loans.

Collect at least three written quotes and compare them on more than the headline rate: look at the term, amortization, fees, prepayment structure, and recourse. The fastest way to put several lender scenarios side by side for your specific property is to get matched with commercial lenders. For where rates are landing this year, see commercial refinance rates in 2026.

Step 6: Order the Appraisal and Underwrite

Once you choose a lender and sign a term sheet, underwriting begins in earnest. The lender orders a commercial appraisal, which typically takes two to four weeks and establishes the official value that caps your loan amount. Lenders use the lower of the appraised value or, on recent purchases, the price paid. For certain property types you may also need a Phase I environmental report.

During underwriting, the lender verifies your income, recalculates DSCR against the proposed payment, confirms the LTV against the appraisal, runs title, and reviews your entity. Respond to information requests within a day or two—underwriter follow-ups that sit unanswered are the most common cause of slippage. If the appraisal comes in lower than expected, you may need to reduce the loan amount, bring in cash, or renegotiate terms. Understanding the steps in advance helps; see why commercial refinances get delayed.

Step 7: Close and Pay Off the Old Loan

At closing you sign the new loan documents, and the new lender wires funds directly to your old servicer to pay off the existing balance. Any cash-out proceeds, net of closing costs and the payoff, are disbursed to you. Closing costs generally run 2-5% of the loan amount and can be paid out of pocket or, in many cases, rolled into the new loan.

After funding, confirm that the old lien is released and recorded, and verify your first payment date and amount on the new loan. Keep the closing statement and the lien release for your records. From signed term sheet to funding, a conventional refinance commonly closes in 30-60 days, while SBA structures run 45-90 days. To set expectations, see how long it takes to close a CRE loan.

Common Reasons Refinances Stall

Most delays trace back to a handful of avoidable issues. A low appraisal shrinks your borrowing power and can blow up the LTV math. Weak or declining DSCR—often from rising expenses or a vacancy—can cut proceeds or sink the deal. An underestimated prepayment penalty can erase the savings you were counting on. And incomplete documentation, especially missing tax returns, leases, or a current rent roll, stretches underwriting for weeks. Title surprises, like an unreleased prior lien or a judgment, also surface late. The fix for nearly all of these is preparation: clean documents, a realistic value estimate, and an early read on your prepayment penalty before you commit.

How Long It Takes

For a stabilized property with a complete document package, plan on 30-60 days for a conventional bank refinance and 45-90 days for an SBA refinance, where the additional review and approval layers add time. Refinances often move a bit faster than purchases because there is no seller or contract contingency, but appraisal turnaround (two to four weeks on its own) and prepayment-penalty review can extend the timeline. If you are racing a balloon maturity, begin the process 6-12 months out so the new loan funds with comfortable margin.

Next Steps

Work the steps in order: confirm your goal, pull your payoff statement, estimate your LTV, assemble your documents, then compare lenders before you commit to anyone. If your need is short-term capital rather than a full refinance, a working capital loan or business line of credit may be a cleaner fit. Otherwise, run the numbers with the payment calculator, then get matched with commercial real estate lenders to see programs built for your property and goals—or explore all commercial real estate loan options.