When Does Refinancing a Rental Property Make Sense?
Refinancing feels like free money — a lower payment, or cash pulled out of a property that went up in value. It isn't free. It's a trade, and whether it's a good one comes down to a single calculation most people skip: the break-even point.
The two reasons to refinance
- Rate-and-term: lower your interest rate or change the loan length to cut the payment.
- Cash-out: borrow against equity you've built to fund the next deal (the "R" in BRRRR).
The math that decides it
A refinance has real costs — closing costs, appraisal, points. Divide those total costs by your monthly savings to get the break-even: the number of months before the refi starts truly paying off. If you plan to hold well past break-even, a rate-and-term refi likely makes sense. If you might sell before then, it doesn't.
Watch the reset. Refinancing a 30-year loan you're 6 years into back to a fresh 30 years lowers the payment but restarts amortization — you pay interest on the early-year schedule all over again. A lower payment isn't automatically a better deal.
For cash-out, judge the redeployment
Pulling equity out only makes sense if the money earns more elsewhere than it costs you here. If a cash-out refi raises your payment but frees capital that buys a property returning well above the new rate, the trade works. If the cash just sits, you've made your existing rental more expensive for nothing.
Don't forget DSCR
A cash-out refi raises your loan balance and payment, which lowers your debt-service coverage. Check that the property still comfortably covers the new payment before you commit — lenders will, and so should you.
Run the break-even in seconds. The EYRIE Mortgage & Refinance Calculator shows payment, savings and the exact month a refi pays for itself. See it on Etsy →