Refinancing is a full re-underwrite
Expect the same document list as an original purchase financing: three years of financials, TTM P&L, STR competitive set data, current franchise agreement status, and an updated going-concern appraisal. If NOI has grown since acquisition, this works in your favour on both loan amount and rate; if NOI has softened, be prepared for a smaller loan proceeds figure than the maturing balance.
The 'refinance gap' problem
A common issue at renewal is a refinance gap — where the new loan amount supportable by current NOI and DSCR is smaller than the outstanding balance, requiring a cash injection to close the gap. This happens most often when a property was financed near peak leverage originally, rates have risen, or NOI has declined due to renovation disruption or a soft flag transition.
How rate is set at refinance
Refinance pricing follows the same structure as new purchase financing: base benchmark rate plus spread for flag, DSCR cushion, LTV requested, and operating history. A hotel that has stabilized and grown RevPAR since acquisition often qualifies for better pricing than the original loan, even in a higher rate environment, because the risk profile has genuinely improved.
Timing your refinance application
Start the refinance process 6-9 months before maturity, not 60 days before, given appraisal and franchise documentation lead times.
- Order the updated going-concern appraisal 4-5 months out
- Confirm franchise agreement renewal status and any pending PIP requirements early
- Assemble 3 years of financials and TTM figures well ahead of application
- Get comparative quotes from at least two to three lender types before committing
Cash-out refinancing to fund growth or reserves
If NOI growth or cap rate compression has increased going-concern value, a cash-out refinance can free up equity for renovations, a second property acquisition, or rebuilding FF&E reserves, subject to the lender's maximum LTV and DSCR limits on the new loan amount.
What to do if you're facing a refinance shortfall
If your maturing balance exceeds what current NOI supports, options include a partial paydown from other funds, a short-term second-position bridge loan to cover the gap while operations stabilize, or negotiating an extension with the existing lender while you address the underlying NOI issue. Addressing this early — well before maturity — preserves far more options than waiting until the last month.
Frequently asked questions
- Will my hotel mortgage automatically renew at maturity?
- No — hotel mortgages are re-underwritten at renewal against current NOI, DSCR, and appraised value, so the new loan amount and rate can differ meaningfully from your maturing terms, particularly if performance or rates have shifted.
- What happens if my hotel doesn't qualify for the full balance at refinance?
- This creates a refinance gap; borrowers typically fill it with a cash paydown, a subordinate bridge loan, or an extension negotiated with the current lender while operating performance improves.
- How early should I start my hotel refinance in Toronto?
- Six to nine months before maturity, to allow time for an updated going-concern appraisal, franchise documentation, and comparing quotes across institutional, alternative, and private lenders.
Talk to a Toronto hotel financing specialist
We arrange hotel, motel and resort debt across Toronto, the GTA and Ontario — acquisitions, refinancing, construction and PIP capital, and short-term bridge loans — through banks, credit unions, secondary institutional and private lenders.