The Quick Read: Cash back from a cash-out refinance equals the new loan amount minus the full private note payoff minus closing costs and any reserves funded from proceeds, and the new loan is capped at about 75% of the lender’s appraised value on a standard investment rental, subject to lender guidelines. The payoff letter, the appraisal and the rent test each shrink the check before it reaches you. Nothing is returned until the old note is retired and the costs are paid.
Key Takeaways
- The payoff figure is not the balance on your last statement. It adds accrued interest, per diem interest and any exit or extension fees.
- The new lender’s appraisal sets value. Your after-repair estimate does not.
- Because the cap applies to value, a small appraisal miss shrinks the check by more than the miss.
- Rent has to support the larger loan. The weaker of the equity test and the rent test sets your cash.
- Most programs expect about 6 months of ownership before cash-out is available.
What Does a Cash-Out Refinance Return When It Retires a Private Note?
A cash-out refinance returns whatever is left of the new loan after the private note is paid off and the closing costs are covered. On an investment rental, the new loan tops out around 75% LTV across most of the wholesale network Lendmire works with. The remainder, if any, is your net cash. Final terms depend on the lender’s guidelines, the property type, and the borrower’s complete credit picture.
A private note is a loan from a non-bank lender, often a short-term or hard-money loan secured by the property. Investors commonly use one to buy and rehab a rental. The plan is to refinance into long-term DSCR investor loans once the work is done and the property is rented.
The exit is where investors get surprised. The old note is paid first, out of the new loan’s proceeds. Costs come next. What is left over is the check.
That check is usually smaller than the equity on paper. The leverage cap, the payoff, the fees and the closing costs all come out ahead of you.
The Cash-to-You Formula, Step by Step
The formula is the new loan minus the payoff minus costs. In plain terms: cash to you = (cap × appraised value) − payoff − closing costs − reserves funded from proceeds. If the result is zero or negative, no cash comes back, and you may owe cash at closing.
Here is the order the money moves:
1. The new loan amount is set by the leverage cap times the new lender’s appraised value.
2. The principal of the private note comes out.
3. Accrued interest and per diem interest through the funding date come out.
4. Any exit, extension or prepayment fees listed on the payoff letter come out.
5. New-loan closing costs come out: title, appraisal, lender fees and prepaids. This applies unless you pay them out of pocket.
6. Any reserves funded from proceeds come out.
7. What remains is net cash to the borrower.
Break-even is simple arithmetic. The appraised value you need before any cash returns is (payoff + closing costs) ÷ the LTV cap. At a 75% cap, every dollar of payoff and cost needs about $1.33 of appraised value behind it.
What the Payoff Number Really Contains
The payoff is the full amount needed to retire the note on a specific date. It is not the last statement balance. Nolo explains that a payoff letter is valid only through a good-through date. It breaks out accrued interest, fees and costs, gives per diem interest so a late payoff can be recalculated, and flags any prepayment penalty.
Private notes often carry more moving parts than a bank mortgage. Exit fees, minimum-interest terms and extension fees all land on that letter, so read your own note to see which of them apply to you.
| Payoff line | What it is | Effect on your cash |
|---|---|---|
| Principal | Unpaid loan balance | Dollar-for-dollar reduction |
| Accrued interest | Interest earned since the last payment | Reduces cash |
| Per diem | Daily interest after the good-through date | Grows if funding slips |
| Exit or extension fees | Charges set in the note | Reduces cash |
| Release or recording items | Costs to clear the lien | Small, but real |
Per diem is the quiet one. If funding lands after the good-through date, the title company needs a refreshed letter. Every extra day adds interest to the payoff and subtracts it from your check.
Worked Example: Three Ways the Same File Plays Out
These figures are modeled assumptions, not market data. They are shown as percentages of the original appraised value, so no dollar amounts are needed.
Assume the property appraises at 100 points of value. The payoff stack is 68 points. Closing costs run 3 points. The leverage cap is 75% LTV on a cash-out refinance of a standard investment rental. Each figure is subject to lender guidelines and a complete review of property type, leverage, and credit.
| Line (points of value) | Base case | Low appraisal |
|---|---|---|
| Appraised value | 100 | 95 |
| New loan at 75% cap | 75.00 | 71.25 |
| Less payoff | 68 | 68 |
| Less closing costs | 3 | 3 |
| Cash to you | 4.00 | 0.25 |
A 5% value miss cut the check from 4 points to a quarter point. That is roughly a 94% drop in cash from a 5% drop in value. The cap multiplies the miss, and the fixed payoff and costs do not move.
Break-even in this file is (68 + 3) ÷ 0.75, or about 94.7 points of value. Below that, no cash returns.
A third case is a delayed funding date. The appraisal holds at 100, but per diem and a refreshed payoff letter add a point of interest and fees to the stack. The check drops from 4 points to 3. Delay does not change the loan size. It only grows the payoff.
Rolling costs into the loan or paying them in cash changes the picture. The closing-cost section below covers that.
How Underwriting Treats the File, Step by Step
Each step can lower the result.
1. Classification. The file is labeled either rate-and-term (payoff only) or cash-out. A refinance that returns cash above payoff and costs is cash-out, whatever kind of loan it pays off. On select programs, a rate-and-term refinance of an investment property can carry a higher ceiling, up to 85% LTV, but it returns no cash at closing. The cash-out line stays at 75% LTV on standard rentals. Short-term rental collateral is lower: 70% on a cash-out for short-term rental collateral, against 75% for a standard long-term rental. Leverage, reserves, and pricing vary by lender and program; the final terms follow the full file review.
2. Payoff demand. Title or the closing agent requests a written payoff from the note holder with a good-through date and per diem.
3. Appraisal and rent opinion. The new lender’s appraisal sets value. For rent, appraisers use the agency forms 1007 (rent schedule) and 1025 (small residential income property appraisal). A lease or market-rent opinion supports the income side.
4. Sizing. The loan is the cap times appraised value. Programs reach loans of up to $3,000,000 on standard terms, and smaller balances route through select lenders in the network.
5. Coverage test. DSCR is monthly rent divided by the full monthly payment of principal, interest, taxes, insurance and any HOA dues. Many select programs start at a 1.00 floor. A separate select-lender path goes below 1.00, with leverage and terms adjusted. Stronger ratios open better pricing and leverage.
6. Credit and reserves. A 620 score floor exists in parts of the network. Most programs want around 660, and 700 and above unlocks the strongest leverage tiers. Reserves vary by lender, leverage, loan size and transaction type. About 6 months of PITIA is common, and loans above $1,500,000 typically step up to about 9 months.
7. Funding. The note holder is paid from loan proceeds through title. Any remainder is wired to you. You never handle the payoff money.
DSCR loans are designed for non-owner-occupied investment properties. Because they are business-purpose investor loans, they are reviewed differently from a standard owner-occupied mortgage. DSCR is also exempt from the consumer disclosure regime, so a consumer-style Closing Disclosure is not the governing document.
For the full range of DSCR programs, see the complete DSCR loans guide.
Rent Can Cap the Check Before Leverage Does
Equity and rent are two separate tests. A bigger cash-out loan means a bigger monthly payment, so rent can limit proceeds before the 75% cap does. The strongest files clear both: enough equity and enough coverage.
Clearing 1.00 is not the same as positive cash flow. The coverage test compares rent to PITIA only. Repairs, vacancy, management, utilities and capex sit outside it.
The practical lever is pulling less cash. A smaller loan keeps the ratio higher and may improve terms. Interest-only periods and extended terms such as 40-year are available through select lenders in the network. They change the payment used in the test, subject to program terms.
A larger down payment never erases leverage caps, credit floors, reserve rules or property eligibility. On a refinance, the same logic applies to the equity you leave in the property.
Three Ways to Pay Closing Costs
Costs can come out of pocket, out of proceeds, or be rolled into the loan. Each choice moves cash and coverage differently.
| Method | Effect on your cash | Effect on loan and DSCR |
|---|---|---|
| Paid out of pocket | Check stays larger | Balance unchanged |
| Deducted from proceeds | Check shrinks | Balance unchanged |
| Rolled into the loan | Check stays larger | Balance and payment rise, DSCR falls |
Rolling costs in looks free, but it is not. It raises the balance and the payment, which lowers coverage. On a file near the 75% cap, there may be no room to roll anything in.
If the old note held an escrow balance, its refund can offset new prepaids. The cash-to-close line is then not the true cost of the refinance.
Where the General Rule Breaks
The formula holds on every file. These cases change what goes into it.
The payoff keeps growing. Interest, extensions and exit fees accrue while you wait out the ownership clock. Break-even value rises with every added charge. A note that matures before the clock clears forces a decision.
The ownership clock. Most programs expect about 6 months of ownership before cash-out, measured from title recording. This is lender policy, not federal law. Inside the window, some programs size the loan off cost basis instead of appraisal. The loan may then fall short of the payoff, and you bring cash.
Thin equity. A note that consumed most of the leverage cap leaves little or nothing. A strong appraisal is the only fix. A cash-out loan cannot lift the cap.
Free and clear. With no payoff, the whole loan is proceeds. The cash-out cap still applies.
Large loans and short-term rentals. Caps and reserves differ for both. Short-term rental programs typically expect a 640 or higher score and about 12 months of hosting history.
Agency delayed financing is not a DSCR feature. For contrast only, the Fannie Mae Selling Guide waives its title clock only for arm’s-length all-cash purchases. A purchase financed with a private note secured by the property is generally not a cash purchase. The same section also requires an existing first mortgage being paid off to be at least 12 months old. Neither rule governs DSCR loans, so do not plan around either.
Recorded and unrecorded notes. A recorded private note appears in title, and the holder signs a release that title records. An unrecorded note, such as a family or business loan, leaves less on public record. Title then relies on a signed payoff letter and a written release from the holder. Either way, the payoff cannot close without the holder’s cooperation.
How the Closing Paperwork Shows the Number
The final paperwork shows cash due from or to you in a cash-to-close table. The CFPB’s guide to the Loan Estimate and Closing Disclosure forms is a clear public model of that arithmetic. Its table builds the figure from seven components, including total closing costs, costs financed from the loan amount, and credits. A negative result means cash to the borrower.
That guide governs consumer loans, not DSCR loans. Use it only to see how the pieces add up. Your actual settlement paperwork follows the lender’s own forms.
What the Investor Decision Looks Like
Cash recovered, not the headline LTV, decides whether a BRRRR-style exit recycles your capital. Run the break-even first, then decide whether the exit makes sense.
If the numbers fall short, you have four choices:
- Extend the note, which usually carries a fee.
- Refinance payoff-only and bring no cash.
- Bring cash to closing to cover the gap.
- Sell the property.
Keep in mind that you owe the whole new balance, not only the cash you pulled. A bigger check means a bigger payment and thinner coverage. Per diem interest and fees on the old note are a real cost of waiting, so compare them to what a better appraisal might add.
Tax treatment can depend on how the funds are used and how the property is held; investors should keep clear records and speak with a qualified tax professional before relying on any deduction.
For related walkthroughs, see Lendmire’s piece How Much a Rental Cash-Out Refinance Releases After a Private Note. Lendmire also covers what a DSCR cash-out refinance leaves after payoff and costs.
Key Terms Defined
Per diem: The daily interest charge that accrues on the old note after the payoff letter’s date.
Payoff letter: The note holder’s written statement of the exact amount needed to retire the note on a given date.
Good-through date: The last date the payoff figure stays valid before it must be refreshed.
Seasoning: The ownership period a lender requires before it allows cash-out, measured from title recording.
Net proceeds: The cash wired to you after the old note, costs and reserves are paid from the new loan.
Cash-out refinance: A refinance whose new loan returns cash above the payoff and closing costs.
LTV: Loan-to-value, the loan amount divided by the lender’s appraised value.
Frequently Asked Questions
Can I get cash back after paying off a private note?
Yes, when the new loan, capped at about 75% LTV on a cash-out refinance of a standard investment rental, exceeds the payoff plus costs. Equity on paper does not guarantee a check. Rent coverage, the ownership clock and the appraisal each have to clear, subject to lender guidelines.
Is paying off a private note always a cash-out refinance?
No. The label depends on whether cash comes back to you, not on what kind of loan is retired. A payoff-only refinance returns no cash and is classified as rate-and-term. If any cash returns above payoff and costs, the file is cash-out and the cash-out limits apply.
Does the payoff show up in my bank account?
No. Title pays the note holder directly out of the loan proceeds. Only the net remainder is wired to you, so the payoff wire does not touch your account.
What if the note holder will not cooperate or release the lien?
The refinance cannot clear title without a written payoff and a release from the holder. Review the note terms and your state’s rules on payoff statements early. A holder who stalls adds per diem interest, which shrinks your cash. Massachusetts, for example, requires a payoff statement to include a per diem or formula, but private-note payoff rights depend on the note terms and state law.
How do I get my exact payoff figure?
Ask the holder, through title, for a written payoff with a good-through date and per diem. Compare it to your last statement. The difference is usually accrued interest and fees. Refresh the letter if funding slips past its date.
Next Steps
If you are buying or refinancing a rental property and want to see how the numbers work, Lendmire can help you compare DSCR loan options based on the property income, credit profile, leverage, and investor goals. Lendmire is a broker that arranges financing through select lenders in its wholesale network, across 41 markets including Washington, D.C. Program terms are subject to lender guidelines and are not a commitment to lend.
Before you apply, pull the payoff letter, note the good-through date, and run the break-even value against a conservative appraisal.
A deeper walk-through of investment-property equity extraction lives in Lendmire’s guide to cash-out refinance on an investment property.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage brokerage specializing in DSCR investor loans, helping arrange financing across 41 markets, including Washington, D.C., through wholesale and investor-lending channels. The model centers on property-level rental income reviewed by the lender rather than W-2 documentation, subject to lender guidelines, suiting entity-owned and multi-property investors. Lendmire holds Scotsman Guide Top Mortgage Workplace recognition for 2025 and 2026.
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References
1. Nolo: What Happens If My Mortgage Servicer Doesn’t Send the Payoff Statement I Requested
2. Fannie Mae Selling Guide B2-1.3-03: Cash-Out Refinance Transactions
3. CFPB Guide to the Loan Estimate and Closing Disclosure Forms (v2.0)
This article is part of Lendmire’s cash-out refinance program — full qualification details, guidelines, and scenarios live on the program page.
Related reading: How Much Cash to Take on a Cash-Out Refinance to Clear Card Debt · How Soon After Buying Can You Cash-Out Refinance? · How Much Equity Do You Need for a Cash-Out Refinance?
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
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Disclosures. The information presented in this article is general market commentary, not financial, legal, or tax advice. Lendmire is a mortgage brokerage (NMLS# 2371349) — not a direct lender or depository institution — and loan placement is subject to lender underwriting. Nothing in this content represents a commitment to lend. Loan terms, pricing, and program availability vary based on borrower qualifications, property characteristics, and state of subject property, and are subject to change at any time. Lendmire complies with Equal Housing Opportunity requirements. Consumer access: nmlsconsumeraccess.org.