No Rate Cut Needed: We Closed a 6.375% Cash-Out Refinance in Tennessee

Here's the headline most investors are stuck on: the Fed didn't cut. At its June meeting, the Federal Open Market Committee voted to leave the benchmark rate unchanged in the 3.5% to 3.75% range — the fourth straight hold after the cuts late last year. If anything, the committee's own projections now lean toward a possible hike before year-end, not a cut. The "rates are coming down soon" trade a lot of people were waiting on has quietly gone away.

And yet, we recently closed a 30-year fixed cash-out refinance on a Tennessee rental at 6.375%. No Fed help. No special program. Just a property that carried its own debt and a borrower profile that priced where the market actually is right now.

I want to walk through how that deal got done, because it exposes a mistake I see investors make over and over: they're watching the wrong interest rate. The number the Fed sets is not the number that prices your DSCR loan — and if you sit on the sidelines waiting for a cut that the market is no longer even forecasting, you're leaving performing capital stranded while someone less patient buys the deal you wanted.

Why the Fed Funds Rate Isn't Your DSCR Rate

The federal funds rate is an overnight rate — what banks charge each other to borrow for one night. It anchors the short end of the curve. Your 30-year fixed DSCR loan lives at the long end, and the long end marches to a different drummer.

DSCR pricing tracks the 10-year Treasury yield plus an investor credit spread — historically running about 200 to 225 basis points over the 10-year for a standard 30-year fixed. That spread moves on inflation expectations, growth, Treasury supply, and how much appetite institutional buyers have for this paper — none of which is the same thing as the Fed's overnight target. The yield curve can shift in ways that adjustments to the Fed funds rate alone simply don't capture.

So when the Fed holds, your 30-year DSCR rate doesn't automatically freeze in place, and a cut wouldn't automatically drop it either. What actually sets your rate is the 10-year plus the spread, and right now that math is working in investors' favor. For the strongest files — high DSCR, top-tier credit, conservative leverage — DSCR rates currently start around 6.0% to 6.25%, and most domestic investor pricing in June ran roughly 6.1% to 6.5%, depending on the deal.

That's not because the Fed did anything. It's because the file was strong: low loan-to-value, a clean debt-service ratio, and a property in a market where the rent genuinely covers the payment. That combination is available today, in this rate environment, to anyone who underwrites a real deal.

Why Tennessee, Specifically

Affordability without growth is a trap, and growth without affordability doesn't pencil on a DSCR loan. Tennessee gives you both, plus a tax structure that's hard to beat.

Start with the obvious lever: Tennessee has no state income tax. Your rental income is taxed only at the federal level, and there's no state capital gains tax when you sell. For an investor operating out of New Jersey, New York, or California, that's not a rounding error — it's a structural improvement to your after-tax return on every dollar of income and every dollar of gain. It's also exactly why people are moving there. Tennessee consistently ranks among the top states for in-migration, and that includes a steady flow from the Northeast and West Coast on top of the Sun Belt churn. Your tenant pool is being restocked by the same tax math that's drawing you in.

The corridors give you a choice of strategy. Memphis is the cash-flow play — the lowest entry prices, anchored by logistics and manufacturing employment. Nashville is the appreciation play, though it's the priciest market in the state, with a median well north of $400,000. Knoxville and Chattanooga sit in between, supported by universities, healthcare, and a broadening employment base. Chattanooga in particular keeps showing up in my underwriting: it's logged roughly 5.2% population growth over the past five years — driven heavily by people leaving higher-cost metros — with about 6,600 new jobs projected for 2026 and median prices well below Nashville's.

The Tennessee Tax Detail You Have to Get Right

Tennessee assesses residential property at 25% of appraised value — and that 25% applies whether the home is owner-occupied or a single-family rental. There's no investor penalty on a single-family rental, which is a genuinely different posture from a state like South Carolina, where the assessment ratio jumps from 4% owner-occupied to 6% for investment property. In Tennessee, on a single-family rental, you're taxed like a homeowner. Stack that on top of a statewide effective property tax rate around 0.63%, among the lowest in the country, and the carrying cost is low.

Now the catch, and it's a real one. The moment a rental property has two or more units, Tennessee reclassifies it as commercial and assesses it at 40% of value instead of 25%. That's a 60% jump in your taxable base the day you step up from a single-family to a duplex or triplex. If you model a small multifamily deal using the residential 25% ratio, your DSCR will look better on the spreadsheet than it will on the tax bill — and the deal you underwrite won't be the deal you own. Run two-plus units at 40%, every time.

What a Tennessee Cash-Out Actually Looks Like

Here are the real numbers from the deal we closed. This investor owned a single-family rental in Tennessee that had built up significant equity. The property appraised at $230,000, and we put a $160,500 loan on it at 6.375%, 30-year fixed.

Monthly principal and interest: $1,001. Taxes and insurance: $2,180 annually, or roughly $182/month. Total PITIA: $1,183/month. Against $1,500 in monthly rent, that's a DSCR of approximately 1.27 — comfortably above the threshold that earns best-tier pricing.

What makes this deal worth highlighting is the acquisition side. This investor bought the property for $37,521. The property appraised at $230,000 — and with no existing mortgage to pay off, the $160,500 loan proceeds went straight back to work. That's the BRRRR engine running exactly as designed: buy right, stabilize, let the equity build, then pull it out and go again. None of it required a Fed cut — just a property that carries its own debt and a file that priced where the market actually is.

There's no seasoning requirement on DSCR cash-out, and no cap on the cash you can take. The investors who compound fastest aren't the ones waiting to save up — they're the ones who understand how to recycle capital already sitting inside assets they own. None of it requires a Fed cut.

The Honest Counter-Case

I won't oversell this. Rates are not going back to 4% on any timeline you should bank on, and with the Fed's own projections tilting toward a hike, you should not underwrite a deal assuming you'll refinance into something cheaper next year. Make the deal work at today's rate or don't do it.

The 6.375% we closed was a strong-file rate, not a street rate. Most DSCR borrowers in 2026 are seeing a range from the low 6s into the 8s, with cash-out, lower coverage, weaker credit, or short-term-rental income all pushing you up that scale. Budget for a higher number and let a great file surprise you, not the other way around. Remember too that a cash-out caps your leverage and resets your amortization clock — you're trading equity today for a longer runway.

And the market has friction. Tennessee rents have flattened in spots as new apartment and build-to-rent supply has come online, so underwrite to current rents, not last year's. Insurance is rising and the storm exposure is real. The two-plus-unit tax jump is real. And because entry prices are low, it's easy to overpay for a tired house and convince yourself the spread is there. Discipline on acquisition price is what separates a 1.25 DSCR from a 0.95.

The Bottom Line

The Fed is going to do what the Fed is going to do, and you have no control over it. What you do control is whether you're running the actual math on a real property — the correct Tennessee tax ratio, a supportable rent, and the rate the market is quoting this week rather than the one you wish it were quoting.

The investors who close in this environment aren't the ones waiting for permission from a rate cut that may never arrive. They're the ones who put a 30-year fixed on a property that pays for itself — at 6.375%, in Tennessee, recently.