When to Refinance a Rental Property: The Math (Not the Vibes)

"Should I refinance?" has three different answers depending on what you're trying to do — lower the payment, pull cash out, or change the loan structure. Confuse them and you can spend $5K in closing costs to "save money" you didn't actually save.

Here's how to decide, with the actual math.

The 3 reasons to refinance an investment property

1. Rate-and-term refi — lower the interest rate, change the term, lower the monthly payment
2. Cash-out refi — pull equity out for the next deal (or to deleverage personal debt)
3. Loan-product change — get out of a hard-money or balloon loan into long-term financing

1. Rate-and-term: the break-even formula

Example: closing costs $5,000. New payment is $180/month lower. Break-even = 5,000 / 180 = 27.8 months. Refi makes sense if you'll hold the property at least 3 years past refinance.

The general rules of thumb:

• Need at least 0.75–1.0% rate drop to make a rate refi worthwhile
• Break-even under 36 months = good
• Break-even over 60 months = usually not worth it

2. Cash-out refi: the BRRRR mechanics

Investment-property cash-out caps at 75% LTV on most conventional and DSCR loans. The math:

Example: $300K appraisal × 75% = $225K new loan. Existing balance $150K. Closing costs $6K. Cash out = 225,000 − 150,000 − 6,000 = $69,000.

Always re-run cash-on-cash after the refi. Your new mortgage is bigger, your cash flow is smaller, but your invested capital is also lower. Sometimes cash-on-cash actually improves; sometimes it tanks.

For the full BRRRR refi step, see our BRRRR method walkthrough.

3. Loan-product refi: getting out of bad debt

If you bought with hard money (10–12% interest, 12-month balloon) you need to refinance into long-term debt before the balloon. Don't wait — start the refi process at month 6 of a 12-month loan.

Two common landing pads:

• Conventional 30-year — best rate, requires personal income docs and DTI checks
• DSCR 30-year — qualified on property cash flow only, slightly higher rate, no personal DTI

The 5 numbers to pull before you start

1. Current loan balance and rate
2. Estimated appraised value (use sold comps or your market analysis)
3. NOI for the trailing 12 months
4. Estimated closing costs (typically 2–4% of the new loan)
5. How long you plan to hold the property

Common mistakes

• Resetting a 30-year clock at year 8. You add 8 years of interest. Consider a 22- or 25-year term to keep total interest in check.
• Refinancing for marginal rate drops. Closing costs eat the savings.
• Cashing out and not deploying the capital. You're paying interest on idle cash.
• Forgetting prepayment penalties on DSCR loans (typically 3-2-1 step-down in years 1–3).

How Havyn helps

Havyn tracks each property's current loan balance, equity, DSCR, and cash-on-cash — so when rates move, you instantly see which properties are candidates to refi. See it on the features page.