In Springfield, the rate-and-term refinance is often the last step of a renovation. A two-family that was bought with a short-term loan, brought up to code and leased is ready for a long-term loan that qualifies on its rent.
In short: LendingStreet's DSCR rate-and-term refinance pays off an existing loan on a Springfield-area 1-8 unit rental, such as hard money, a bridge loan or a maturing bank note, with a new long-term loan based on the property's rent. Some programs go up to 80% LTV on rate-and-term, and 30-year terms are available. The rent must cover the new payment at the program minimum, usually 1.0x.
The most common borrower is an investor finishing a rehab. The short-term loan was interest-only and is coming due. Now the property is leased, and the goal is a fixed long-term loan with no balloon.
Others hold Springfield rentals on loans from local savings or cooperative banks with a balloon after five or ten years, or on loans in a personal name that they want moved into an LLC.
Because no cash comes out, rate-and-term refinances often allow higher leverage and lighter seasoning than cash-out, which helps when the short-term loan is close to maturity.
Both refinances use the same DSCR qualification. The difference is where the money goes.
If you have extra equity but no immediate need for cash, rate-and-term keeps the balance lower and the ratio stronger.
| Feature | Rate-and-term | Cash-out |
|---|---|---|
| Loan pays | Existing loan and closing costs | Existing loan, costs and cash to you |
| Maximum LTV | Up to 80% on some programs | Up to 75% |
| Seasoning | Often lighter | Varies by program |
| Typical use | Exit short-term debt or a balloon | Fund the next purchase |
This example is illustrative and not a quote. An investor bought and renovated a two-family in East Springfield with a short-term loan. The balance is $240,000, with an interest-only payment of about $2,200 a month. After the work, the property appraises at $360,000 and the units lease for $1,500 and $1,450.
A rate-and-term refinance of $246,000 covers the payoff and about $6,000 in costs, about 68% of value. Estimated principal and interest is about $1,678. With taxes of $480 and insurance of $220, the payment is about $2,378, for a DSCR of about 1.24x. The maturity date is gone and the loan amortizes over 30 years.
The appraisal on a freshly renovated two-family is where your work pays off. Give the appraiser the scope of work, permits, photos and any lead compliance letters.
| Item | Short-term loan | DSCR loan |
|---|---|---|
| Balance | $240,000 | $246,000 |
| Payment type | Interest-only | Principal and interest |
| Monthly loan payment | About $2,200 | About $1,678 |
| Term | Short, with maturity date | 30 years |
Massachusetts has many community savings and cooperative banks, and plenty of Springfield landlords hold rentals on their loans. Those loans often reset or balloon after a set number of years, and renewal can come with new pricing or a request for updated financial statements and tax returns.
A DSCR refinance looks at the property's rent instead of your personal income. Start a few months before the maturity date so there is time for the appraisal and the attorney's title work.
Bring the note, the maturity date and any renewal offer. If the bank has offered new terms, compare them with a DSCR loan side by side before you decide.
We qualify the loan on the leases in place. If a unit is between tenants, tell us early; some programs can use a market rent estimate, but a short delay to sign a lease often produces a better result.
Under Massachusetts law, give tenants proper notice before the appraiser visits, and schedule the inspection when units are presentable. A few months of on-time rent deposits help show the leases are real.
We use current leases to figure the ratio. Have signed leases for every unit and proof of payment. Each unit should meet the state sanitary code, and the city should not have open orders on the property.
Lead compliance is not part of the DSCR formula, but if your renovation included deleading, keep the letters of compliance with your file. They support the rentability of the units and answer questions from the appraiser and the insurer.
If the renovation changed the unit layout or added a bedroom, make sure the permits and the city's records reflect the finished building.
Massachusetts refinances are usually closed by an attorney, who orders title and a municipal lien certificate from the city. The certificate shows unpaid taxes and water and sewer charges, which must be paid at closing. If you are behind on any of those, clear them before you apply.
If the property is in your personal name and you want it in an LLC, your attorney can prepare a new deed so the loan closes in the LLC's name.
Order the payoff letter from your current lender early, and confirm whether it includes any per-diem interest or fees after the maturity date.
Compare the full payment before and after, including taxes and insurance. Moving from an interest-only short-term loan to a 30-year amortizing loan often lowers the monthly cost and builds equity at the same time. On a bank loan that is already amortizing, the benefit may be removing the balloon rather than a lower payment.
If the numbers show only a small benefit, it may make sense to wait until the current loan is closer to maturity, or to combine this refinance with others in a blanket loan once you have five or more rentals.
LendingStreet makes business-purpose loans on non-owner-occupied investment property. Send your payoff letter, leases and property details through the form below, or call (877) 298-1001. We will tell you whether rate-and-term or cash-out fits better.
If you have several Springfield rentals coming off short-term loans, we can line up the refinances together.
A refinance that pays off your existing loan and closing costs without cash out, using a loan qualified on the property's rent.
Up to 80% LTV on some programs, as long as the rent covers the new payment at the program minimum.
Often, once the property is leased. Seasoning is usually lighter for rate-and-term than for cash-out, but it varies by program.
Yes. A 30-year DSCR loan can pay off a maturing bank loan without personal income documents.
A Massachusetts closing attorney, who also handles title and the municipal lien certificate.
They are not required for the ratio, but they support the property's rentability. Keep them with your file.
Yes. The new loan can close in the LLC's name once the deed is transferred.
A cash-out refinance up to 75% LTV may fit better. We can compare both.
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