What is the difference between a rate-and-term and a cash-out refinance?

A rate-and-term refinance replaces your existing loan to improve the rate or term without taking equity out — you get no cash at closing. A cash-out refinance replaces the loan with a larger one and hands you the difference in cash. Rate-and-term optimizes the loan; cash-out extracts equity. That single distinction sets the LTV cap, the seasoning requirement, and the rate.

Which has a higher LTV limit, rate-and-term or cash-out?

Rate-and-term allows higher leverage — commonly 75%–80% LTV on investment property — while cash-out typically caps around 70%–75%. Because cash-out pulls equity out of the property, lenders hold the ceiling several points lower than a rate-and-term or a purchase. Jaken Finance Group's DSCR program allows up to 85% LTV rate-and-term and 80% LTV cash-out in select markets for qualified borrowers.

Does a cash-out refinance require seasoning when rate-and-term doesn't?

Usually, yes. Cash-out on an investment property commonly requires around six months of ownership seasoning from the recorded acquisition date on non-QM/DSCR programs, while rate-and-term generally skips or shortens the seasoning clock. Payoffs of a bridge or hard money loan often waive seasoning entirely on a rate-and-term refinance.

Is a cash-out refinance more expensive than a rate-and-term?

Typically a bit. Cash-out refinances carry slightly higher rates and stricter reserve requirements than rate-and-term because the lender is extending more relative risk. If you don't actually need the equity, a rate-and-term refinance is the cheaper way to improve your loan.

When should I choose a cash-out refinance over rate-and-term?

Choose cash-out when you need capital — to fund the next down payment, pay off a bridge or hard money loan with proceeds left over, or recover rehab money in a BRRRR. Choose rate-and-term when the only goal is a lower rate or better term and you don't need to pull equity, since it's cheaper, higher-LTV, and often seasoning-free.

Blog

Rate-and-Term vs Cash-Out Refinance for Investment Property

Published July 23, 2026

By Jaken Finance Group · Principal, Jaken Finance Group

Rate-and-term vs cash-out refinance for investment property — LTV caps, seasoning, rate difference, and which refinance fits your rental strategy in 2026.

Rate-and-term vs cash-out refinance is decided by one question: are you pulling equity out? A rate-and-term refinance improves your rate or term with no cash at closing — higher LTV (75%–80%), often no seasoning, and a lower rate. A cash-out refinance hands you equity in cash but caps LTV lower (70%–75%), usually requires ~6 months of seasoning, and prices slightly higher. That classification is set before anything else gets underwritten, and it shapes the whole file.

Key stats at a glance

Rate-and-term LTV: commonly 75%–80% on investment property; up to 85% at Jaken Finance Group in select markets for qualified borrowers
Cash-out LTV: commonly 70%–75%; up to 80% at Jaken Finance Group in select markets for qualified borrowers
Rate-and-term seasoning: often none or minimal
Cash-out seasoning: ~6 months typical on DSCR/non-QM programs
Rate: rate-and-term lower; cash-out slightly higher
Cash at closing: rate-and-term = none; cash-out = equity proceeds
DSCR close: 14 business days at Jaken Finance Group

Complete comparison matrix

Factor	Rate-and-term refinance	Cash-out refinance
Cash at closing	None	Equity in cash
Primary goal	Improve rate or term	Access equity
Max LTV (investment)	75%–80% common; up to 85% at Jaken Finance Group*	70%–75% common; up to 80% at Jaken Finance Group*
Seasoning	Often none/minimal	~6 months typical
Rate	Lower	Slightly higher
Reserves	Standard	Often higher
Bridge/hard money payoff	Seasoning often waived	May still season for cash back
Qualification (DSCR)	Property rent ÷ payment	Property rent ÷ payment
Prepayment penalty	3–5 year step-down common	3–5 year step-down common
Underwriting classification	Set first — drives caps	Set first — drives caps
Best use case	Lower payment, term-out a bridge	Fund next deal, recover rehab capital

Sources: non-QM/DSCR investor program guidelines, 2026; Jaken Finance Group loan parameters. *Jaken Finance Group caps apply in select markets for qualified borrowers.

The trade — dollar impact on a $400,000 value

Existing loan balance $250,000:

Path	Max loan	Cash to you	Typical rate	Seasoning
Rate-and-term (78% LTV)	$250,000 (payoff only)	$0	Lower	Often none
Cash-out (75% LTV)	$300,000	~$50,000	Slightly higher	~6 months

If you only want a better rate, rate-and-term does it cheaper, at higher LTV, and often without waiting. If you need the ~$50,000 to fund the next acquisition, cash-out is worth the higher rate and the seasoning clock. Model the payment either way on the DSCR calculator.

Rate-and-term refinance details

Built to improve the loan, not extract equity:

No cash at closing — you replace the existing loan to lower the rate or change the term
Higher LTV headroom (75%–80%) and typically lower rate
Seasoning often waived, especially when paying off a bridge or hard money loan
The cleanest, fastest way to term a short-term loan into permanent financing — see bridge loan vs DSCR loan and hard money to DSCR refinance

Cash-out refinance details

Built to turn equity into deployable capital:

Replaces the loan with a larger one; you receive the difference in cash
Lower LTV cap (70%–75%) and a slightly higher rate
Usually ~6 months of seasoning — though no-seasoning programs exist on documented rehabs
The BRRRR capital-recovery engine and the way many investors fund the next down payment

Requirements checklist: cash-out refinance investment property requirements. Comparing against a line of credit? See cash-out refinance vs HELOC.

Which should you choose?

Follow this decision path:

Do you need cash out of the property?
- No → Rate-and-term — cheaper, higher LTV, often seasoning-free.
- Yes → Continue.
Are you paying off a bridge or hard money loan with no cash needed beyond the payoff?
- Yes → Rate-and-term — seasoning is typically waived.
- No → Continue.
Is the cash for the next deal, a rehab-capital recovery, or reserves?
- Yes → Cash-out — accept the lower LTV and seasoning for the proceeds.
Is the property freshly rehabbed and you need capital back fast?
- Consider a no-seasoning cash-out with documented rehab.
Only chasing a lower payment?
- Rate-and-term every time — don’t pay the cash-out premium you don’t need.

Side-by-side: what each optimizes

Priority	Rate-and-term	Cash-out
Lowest rate	✓	Higher
Highest LTV	✓ 75%–80%	70%–75%
No seasoning wait	✓ Often	~6 months
Cash for the next deal	None	✓
Recover rehab capital (BRRRR)	—	✓
Cheapest way to term out a bridge	✓	—

How the agency rulebook draws the line

DSCR lenders write their own guidelines, but most borrow the vocabulary from Fannie Mae. Knowing those rules helps you read any term sheet.

Limited cash-out (rate-and-term)

Fannie Mae’s Selling Guide section B2-1.3-02 allows a small amount of cash back on a limited cash-out refinance. The cap is the greater of 1% of the new loan amount or $2,000.

Example: On a $300,000 refinance, 1% is $3,000, which beats $2,000. You could receive up to $3,000 at closing and the loan still counts as rate-and-term. Ask for $10,000 and it becomes a cash-out refinance, with the lower LTV cap and pricing that come with it.

The same section lets a limited cash-out refinance pay off a subordinate lien that was used to buy the property. If your second lien came later, ask the lender how it will classify the payoff before you apply.

Cash-out

Fannie Mae’s Selling Guide section B2-1.3-03 sets three timing rules for cash-out:

Title seasoning: at least one borrower must have been on title for at least six months before the new loan disburses.
Loan seasoning: an existing first mortgage being paid off must be at least 12 months old, measured note date to note date.
Delayed financing exception: a borrower who bought the property within the past six months may still do a cash-out refinance if all listed conditions are met.

DSCR programs often relax these clocks, which is why no-seasoning cash-out options exist. But if a DSCR lender says “six-month seasoning,” it usually means the same title test. Our DSCR loan seasoning guide compares the common versions.

Worked example — the true cost of the extra cash

Example: You finished a BRRRR rehab. The house appraises at $400,000, rents for $2,900 a month, and carries $450 a month in taxes and insurance. Your bridge loan payoff is $300,000. Closing costs are about $5,000.

Assume illustrative DSCR rates of 7.5% for rate-and-term and 7.875% for cash-out, both on 30-year fixed loans.

	Rate-and-term	Cash-out
New loan	$305,000 (payoff + costs)	$320,000 (80% LTV)
LTV	76.3%	80.0%
Cash to you	$0	About $15,000
Principal and interest	About $2,133	About $2,320
PITIA with $450 taxes and insurance	About $2,583	About $2,770
DSCR at $2,900 rent	1.12	1.05

The cash-out costs about $188 more each month, or roughly $2,250 a year. That buys you $15,000 of cash. The effective cost of that extra money is about 15% a year, because the higher rate applies to the whole balance, not just the new cash.

That can still be a good trade if the $15,000 funds a deal that earns more than 15%. It is a poor trade if the money sits in a savings account. Coverage also drops from 1.12 to 1.05, which leaves less room for a vacancy. Run your own version on the DSCR calculator.

Rate backdrop for refinancing in late 2026

Freddie Mac’s Primary Mortgage Market Survey put the 30-year fixed average at 7.28% for the week of October 1, 2026. That was up from 7.03% the week before and 6.34% a year earlier. The 15-year fixed averaged 6.60%.

Those are owner-occupant benchmarks, not DSCR quotes. Still, they show long-term rates rose over the past year. That changes the math:

If your current note is below today’s rates, a pure rate-and-term refinance rarely saves money. Its main use is replacing a short-term bridge or hard money loan with a 30-year payment.
If you need capital, compare a cash-out against a second lien that leaves your low first mortgage in place. Our HELOC vs cash-out vs second-position DSCR guide walks through that choice.
If you are on a bridge loan near maturity, the refinance type matters less than closing before the maturity date. See hard money loan maturity refinance.

Tax treatment of refinance points and cash-out interest

The IRS treats these two refinance types differently for rental owners. IRS Publication 527 covers residential rental property and says:

Points are prepaid interest. You generally cannot deduct them in full the year you pay them. You deduct them over the loan term under the original issue discount rules.
Cash-out used for non-rental purposes changes deductibility. When you refinance for more than the prior balance, the interest and points tied to proceeds not related to rental use generally cannot be deducted as a rental expense.
Same-lender refinances carry a catch. If you refinance with the lender that holds the old loan, any unamortized points on the old loan generally are not deductible that year. They may be deductible over the new loan’s term instead.

A practical example: if $15,000 of cash-out goes into the down payment on another rental, the tracing analysis looks very different than if it pays off a car loan. Keep records of where the money goes and review them with a tax professional.

Prepayment penalties can decide the timing

Most DSCR loans carry a step-down prepayment penalty. Refinancing early in that schedule can wipe out the benefit of either path.

Illustration: A $300,000 DSCR loan has a 5-4-3-2-1 step-down. Refinancing in year two triggers a 4% penalty, or $12,000. If the new loan saves $150 a month, it takes about 80 months to earn that back.

Check your note for the schedule before you order an appraisal. Our DSCR prepayment penalty guide explains the common structures and how to negotiate them.

Sources

Jaken Finance Group offers both DSCR refinance paths — rate-and-term and cash-out — at 5.75%–10.5% on 30-year terms, closing in 14 business days for non-owner-occupied investment property. See cash-out refinance investment property requirements for documentation specifics.

Rates, terms and conditions offered only to qualified borrowers and are subject to change at any time without notice. All loans are subject to full underwriting for loan approvals. Jaken Finance Group only finances non-owner occupied investment properties.