When interest rates rise, your monthly loan payment climbs, shrinking how much you can borrow against the same property income. A recent refinance shows this: despite solid rents and equity, the owner got $400,000 less than expected because higher rates pushed the debt service coverage ratio below the lender's threshold.
With interest rates rising, loan payments are higher, which means the same income supports a smaller loan. That is exactly why the rate environment affects refinancing proceeds and the price. I recently reviewed a property where the owner expected to refinance for a loan amount significantly higher than the lender approved. The building had equity, the rents were solid, But after the lender normalized the income, added the management fee, removed the one-time income, added reserves, the DSCR became lower than the threshold. The loan came back more than $400,000 below what the owner expected, not because the building was weak, but because the numbers weren't prepared the way the lenders needed to see them.
