When a rate/term refinance makes sense
Rate/term means the new loan pays off the old one plus closing costs, and little or no cash comes back to you. Investors in Phoenix and Scottsdale use it for a few common reasons:
- Exiting a short-term loan. If you bought or renovated with hard money or a bridge loan, a DSCR refinance can replace it with long-term financing once the home is licensed and booking. See DSCR vs hard money.
- Changing the loan structure. Moving to a different term, a different amortization or a different prepayment structure.
- Moving title into an LLC. Some investors refinance to hold the property in an entity going forward.
- Improving the payment. When pricing conditions or your file have changed, a new loan may lower the payment and raise your ratio.
What changes when the home already has STR history
A rate/term refinance on a seasoned listing is often the cleanest STR file a lender sees. The home is furnished, licensed and booking, and you can document what it actually earned. If you have 12 months of payout statements, programs that read actual short-term income have real numbers to average.
If the home just came off a renovation and has only a few months of bookings, the file looks more like a purchase: the lender may fall back to a market-data estimate or to long-term rent. Tell us what you have.
A rate/term DSCR example
Suppose a Phoenix home near the Camelback corridor was bought with a short-term loan and now has nine months of booking history. A DSCR program reads the history and accepts $5,100 a month of income. The new long-term payment, including taxes, insurance and HOA, is $3,950. The ratio is 5,100 / 3,950 = 1.29, enough cushion for most programs that accept STR income.
Math illustration only. Not a loan offer or a statement of available terms.
Prepayment structures
Many DSCR loans include a prepayment structure, meaning a charge if you pay the loan off early within a set period. The structure is usually something you can choose, and it can affect pricing. If you might sell or refinance the Valley home within a few years, tell us so we compare programs with that in mind rather than defaulting to the longest option.
Documents to gather
- Current mortgage statement and payoff estimate
- Booking platform or management company statements for the months you have
- City STR permit or license, and your TPT license number
- Insurance declarations page showing short-term rental coverage
- HOA documents if the home is in an association
- LLC documents if title is (or will be) in an entity
Then send the scenario. If you are unsure whether cash-out or rate/term fits better, read the cash-out page or ask us to price both.