A Roadmap to Refinancing Your Commercial Property, Hotel or Apartment Building
When refinancing a hotel, apartment building or commercial property makes sense, what it costs to leave your loan, how much you can borrow, and the steps.
Updated & fact-checked Figures are linked to their sources at the end of the article.
Refinancing means replacing the mortgage on a property with a new one. Owners refinance because the old loan is maturing, because a new loan would be cheaper or better suited, or to take out some of the equity the property has built up.
This guide is for owners of apartment buildings, hotels and other commercial property with a loan that is coming due or has become expensive. It explains when refinancing makes sense, what it costs to leave a loan early, how much cash you can usually take out and the steps involved. It is general information; check your own loan documents and get advice before acting.
Why many owners are refinancing now
A large share of commercial loans reach maturity each year, and the borrower must repay, extend or refinance. In the U.S., the Mortgage Bankers Association expects 17% of outstanding commercial mortgage balances to mature in 2026, with hotels most exposed.[1]
U.S. commercial mortgage maturities scheduled for 2026
Comparable figures are not published for Canada, but the same pressure applies to any loan written when rates were lower: at renewal, the property has to support the payments at today’s rates. See commercial real estate lending trends for current rates.
When refinancing makes sense
- The loan is maturing. This is the most common reason, and it is not optional: the balance must be repaid or the loan extended.
- You can cut the cost or the risk. A lower rate, a longer amortization, a fixed rate in place of a floating one, or non-recourse terms in place of a personal guarantee.
- The property has been improved or stabilized. A building that has finished a renovation or lease-up can move from expensive bridge financing to cheaper permanent debt.
- You need capital. A cash-out refinance releases equity for repairs, another acquisition or a partner buy-out.
Two kinds of refinance
Rate-and-term refinance
- New loan roughly equal to the existing balance plus costs
- Aim: lower rate, better terms or a new maturity date
- Usually qualifies for the highest leverage a program allows
Cash-out refinance
- New loan larger than the existing balance; the difference is paid to the owner
- Aim: release equity
- Lenders and programs often set a lower maximum loan-to-value than for purchases or rate-and-term refinances
What it costs to leave your current loan
Before anything else, read the prepayment clause in your existing mortgage. It can decide whether a refinance is worth doing before maturity.
- Closed terms and penalties. Many commercial mortgages cannot be repaid early, or only with a penalty, often three months’ interest or an interest-rate differential.
- Yield maintenance. Common on U.S. agency and life-company loans; it compensates the lender for the interest it loses. Fannie Mae fixed-rate multifamily loans, for example, can be prepaid on payment of yield maintenance, while its variable-rate loans carry a declining prepayment premium.[2]
- Defeasance. Common in U.S. CMBS loans: the borrower buys government securities to replace the property as collateral. It can be expensive when rates have fallen.
- Canada’s Interest Act. Section 10 lets a borrower repay a mortgage with a term longer than five years, once five years have passed, with three months’ further interest. It does not apply to mortgages given by a corporation, so most commercial borrowers cannot rely on it.[3]
Add the new loan’s costs: lender and broker fees, appraisal, environmental and building condition reports, legal fees, and for CMHC-insured loans, the insurance premium.
How much you can borrow
The new loan is sized on today’s value and income, not the original purchase. Lenders apply both a loan-to-value limit and a debt service coverage test, and the lower result applies.
| Program | Maximum loan | Minimum debt coverage | Notes |
|---|---|---|---|
| CMHC MLI Select, existing property, 50 points | Up to 85% LTV | 1.10 | Up to 40-year amortization |
| CMHC MLI Select, existing property, 70 or 100 points | Up to 95% LTV | 1.10 | Up to 45 or 50-year amortization |
| HUD 223(f), market rate (U.S.) | 87% LTV | 1.15 | Different limits apply to cash-out refinances |
| Fannie Mae conventional (U.S.) | 80% LTV | 1.25 | Stabilized properties only |
The figures come from CMHC, HUD and Fannie Mae.[4][5][2] For a hotel or a property whose income has fallen, the coverage test usually binds first: if net operating income does not cover the new payments at the lender’s ratio, the loan will be smaller than the old one, and the owner must bring cash or find other capital.
The steps
Refinancing, step by step
Start 6 to 12 months before maturity
Earlier for hotels or properties with falling income, which take longer to place.
Read your current loan
Maturity date, prepayment terms, extension options and any notice you must give.
Update the numbers
Trailing 12-month operating statement, current rent roll or hotel performance reports, capital spending and a realistic estimate of value.
Talk to your current lender
An extension or renewal can be quicker and cheaper than a new loan, even if you also shop the market.
Get competing term sheets
Compare rate, leverage, fees, prepayment terms and recourse, not just the rate.
Order reports and lock the rate
Appraisal, environmental and building condition reports. Fannie Mae, for example, offers 30- to 180-day rate locks.
Close and pay off
Lawyers handle the payout of the old loan, discharge of the old mortgage and registration of the new one.
The rate-lock range in the steps is from Fannie Mae’s term sheet.[2]
Sources
- 17 Percent of Commercial and Multifamily Mortgage Balances to Mature in 2026 — Mortgage Bankers Association, February 9, 2026. Checked 2026-10-12.
- Multifamily Term Sheet: Conventional Properties — Fannie Mae, 2026. Checked 2026-10-12.
- Interest Act (R.S.C., 1985, c. I-15), section 10 — Justice Laws Website, Government of Canada. Checked 2026-10-12.
- MLI Select — Canada Mortgage and Housing Corporation. Checked 2026-10-12.
- Mortgagee Letter 2025-03: Multifamily Changes in Debt Service Coverage Ratios and Loan to Value/Loan to Cost Ratios — U.S. Department of Housing and Urban Development, January 8, 2025. Checked 2026-10-12.
