Feedback on Cash Out Refinancing Terms

[Andrew Merritt]

Hey All, I'm going through some cash-out refinancing on two of my duplexes and wanted to get some feedback on the terms. I'm working with a DSCR lender if that makes a difference.

I started the process about two months ago and was told that I'd be able to cash out at a 5.5% interest rate.  I just got the disclosures recently and the rates are 7.25% and 7.485%.  I'm told that there is a premium/rate hike charged on cash out refi's right now and that he recommends doing a rate and term refi after a year to drop the rate down to something more reasonable in the mid 5's.  However, these loans come with a pre-payment penalty as well.

I could get on board with that, but I don't see interest rates going down in a year.  There's a lot of stuff that's not adding up and I just wanted to get another opinion on the situation.  I've already paid for both appraisals.  I'd rather not back out of the loans but I also don't want to do anything dumb.

Any feedback would be appreciated.