Mortgage

A mortgage is a loan secured by real property, repaid over a set term with interest. In BRRRR it is the permanent financing the refinance puts in place: a 30-year conventional or DSCR loan that pays off the short-term lender and stays on the property for as long as you hold it.

The new mortgage decides whether the rental works. On the default deal a $195,000 loan at 7.25% costs $1,330 a month, $15,963 a year, against $17,200 of net operating income. That leaves $1,237 of cash flow and a DSCR of 1.08 on the NOI basis.

Rate and term move that outcome more than anything else after the refinance. At 6.5% the same loan costs $1,232 a month and cash flow roughly doubles. At 8% cash flow is close to zero. The refinance rate is set on the day you close it, months after you bought, which is the interest rate risk the strategy carries.

Further reading: Mortgage on Wikipedia.