When does it make sense to refinance a rental property?

Three scenarios. (1) Rate drop of 0.75% or more from your current rate, with a holding plan past the break-even (typically 24-36 months). (2) You need to pull equity for the next deal — cash-out refi recycles capital. (3) You want to remove a co-borrower or restructure terms (interest-only to amortizing, ARM to fixed). If none of those apply, the closing costs ($4-8k typical on an investment property) usually outweigh the savings.

What's the difference between rate-and-term and cash-out refi?

Rate-and-term refi: you replace your existing loan with a new loan of the same balance at a better rate (or different term). No cash comes out. Closing costs are paid from savings or rolled into the loan. Cash-out refi: the new loan is LARGER than the existing balance, and you take the difference in cash at closing. Cash-out has slightly higher rates (10-25bp typically) and lower max LTV (usually 75% on investment property, vs 80% for rate-and-term).

What's the maximum LTV on an investment property refi?

Conventional rate-and-term: typically 75-80% LTV. Conventional cash-out: 75% LTV. DSCR (non-QM) cash-out: typically 70-75% LTV depending on the lender. Most cash-out refis on investment properties cap at 75% — that's the practical ceiling. Above that, you're either in primary-residence territory or paying significant rate premium.

Do I need to season the property before refinancing?

Yes, in most cases. Conventional lenders typically require 6 months from purchase before allowing a cash-out refi. The 'delayed financing' rule lets you avoid the 6-month seasoning IF you bought cash AND meet certain other criteria. DSCR lenders often allow 0-3 month seasoning but at lower max LTV. Plan the timing carefully — a BRRRR that requires fast cash-out refi needs DSCR financing or the delayed-financing route.

Are DSCR refis a good option?

Depends on your situation. DSCR (Debt Service Coverage Ratio) loans qualify the property, not you — useful when your personal DTI doesn't pencil conventional, or when you've maxed out conventional loan slots (Fannie/Freddie cap individual borrowers at 10 financed properties). DSCR rates run 100-200bp higher than conventional. Use DSCR when conventional isn't available; default to conventional when it is.

How to refinance a rental property — rate-and-term, cash-out, and DSCR options | TrueCap

The three reasons to refinance

Refi exists for three core jobs. Be honest about which one applies to your situation — they have different math.

Reason 1: Rate-and-term refi to lower the payment

You currently pay X% rate. Current market rate is meaningfully lower. You refi to the lower rate, same loan balance, and your monthly payment drops by $100-500.

The math:closing costs ($4-8k typical on investment property) divided by monthly savings = break-even months. If you'll hold past the break-even, refi. If you'll sell or refi again before, skip.

Example: $300k loan. Current rate 7.5%, payment $2,098. Refi to 6.5%, payment $1,896. Savings $202/mo. Closing costs $5,500. Break-even = 27 months. If you'll hold past 27 months, refi.

See our interest rate and loan term glossary entries for more on how rate + term interact.

Reason 2: Cash-out refi to recycle capital

The property has appreciated since you bought. You refi at the new higher value, pulling out the equity in cash to fund your next deal.

The math: new loan = 75% of current value. Existing loan gets paid off. Difference (minus closing costs) = cash to you. The cost: higher monthly payment on the larger loan + higher rate (cash-out typically 10-25bp above rate-and-term).

Example: Bought property for $300k with $225k loan. Value now $400k. Cash-out refi at 75% LTV = $300k new loan. After paying off $225k existing balance and $6k closing, $69k of cash to you. Now you have $69k to deploy on the next deal.

Cash-out is the engine of the BRRRR strategyand any portfolio-scaling plan that doesn't rely on adding outside capital.

Reason 3: Restructure terms

Sometimes the goal isn't saving money or pulling equity — it's changing the structure. Common cases:

ARM to fixed — locking in a fixed rate before your ARM resets
Interest-only to amortizing — your IO period is ending and you want to refi rather than face the payment shock
Removing a co-borrower — partnership dissolution, divorce, family arrangement changes
Changing entity — moving the loan into an LLC structure for asset protection

The loan types available

Conventional (Fannie Mae / Freddie Mac)

The default. Best rates (typically 50-100bp lower than DSCR), strongest terms, but stricter qualification (DTI, income docs, asset reserves). Investment property cash-out cap: typically 75% LTV. Individual borrowers limited to 10 financed properties total.

DSCR (non-QM)

See our DSCR loans deep dive for the full picture. DSCR loans qualify on the property's cash flow, not your income. Useful when conventional doesn't work — high-DTI buyers, self-employed without easy income docs, investors past the 10-property conventional cap. Rate premium: 100-200bp. Lower max LTV than conventional. See the DSCR glossary entry for the math.

Commercial / portfolio loans

For 5+ unit properties or investors with portfolios above conventional limits. Rates typically 50-150bp above conventional. Terms vary widely (5/1 ARM with 25-year amortization is common). LTV often 70-75%. Faster underwriting than conventional but more expensive long-term.

The refi process — typical timeline

Day 1-7: shop 3-5 lenders (the spread is wider than you think — often 30-50bp from worst to best quote)
Day 7-14: formally apply with chosen lender; submit income docs, asset statements, current mortgage statement, insurance declarations, rent rolls (for multi-unit)
Day 14-30: appraisal ordered (typically $500-700 for SFR, $1,000-2,000 for multi-unit)
Day 30-45: underwriting review; expect to provide 2-5 rounds of additional documentation
Day 45-60: clear to close, schedule closing
Day 60-65: closing — sign documents, new loan funds, old loan paid off, any cash-out proceeds wired

Total: 45-65 days from application to close on most rate-and-term refis. Cash-out refis sometimes faster (45-50 days) because lenders process them frequently.

The 5 most common mistakes

1. Refi-ing too early (before break-even works)

If you'll sell or refi again before the break-even, the math doesn't work. The closing costs eat the savings. Always run break-even before committing.

2. Not shopping 3+ lenders

The spread between best and worst lender quote on the same deal is typically 30-50bp. On a $300k loan over 30 years, 30bp of difference is $50/mo or $18k of lifetime interest. Always shop — the 2 hours of work returns thousands.

3. Pulling too much cash out at the top of the market

Cash-out refis at peak market value feel great until the next downturn. If you cash-out 75% LTV and values drop 15%, you're at 88% LTV with limited refi options. Build a buffer — don't cash out to the absolute max unless you have a specific high-confidence deployment for the cash.

4. Ignoring DSCR options when conventional won't fit

Investors who've hit their conventional loan cap (10 properties) often think they can't refi at all. DSCR refis exist for exactly this case. The rate is higher but the refi is still doable.

5. Refusing to refi for "just" 50bp

On a $400k loan held 10 years, a 50bp rate difference is ~$120/mo and ~$36k of lifetime interest. Even with $6k of closing costs, the break-even is 50 months and you keep collecting savings for 5+ years after. "Only" 50bp is often worth doing.

Run the math before you commit

Refi decisions hinge on rate, term, closing costs, and hold period. Run the scenarios in TrueCap— it'll show you current-rate vs refi-rate cash flow + break-even + total interest paid side-by-side. Pro's A/B mortgage compare puts both scenarios in one view so you can decide in 60 seconds whether the refi is worth doing.

Related reading: cap rate vs CoC vs DSCR for how refi changes each metric, and DSCR loans explained for when DSCR refi is the right choice.