A refinance holds two numbers. One is what the new payment saves you every month. The other is what the new loan costs to put in place. Divide the second by the first and you get the month the deal starts paying you back, which on the rental below is month 31.
When is refinancing a rental worth it?
The arithmetic is the same whether you own one house or ten. A lower rate cuts the interest half of the payment, the saving turns up as cash flow, and the closing costs leave your pocket on day one.
Freddie Mac’s Primary Mortgage Market Survey put the 30-year fixed average at 7.24% in the week of October 29, 2026, with the 15-year at 6.60% (Freddie Mac PMMS). That is the figure people hold their own rate up against. It is not a quote on a rental, and the example below assumes 7.5% on the new loan as its own assumption.
What settles the question is not the size of the rate drop. It is how long you keep the loan after you pay for it. A $3,934 cost against a $128 saving is a good trade if you hold the house for another ten years, and a bad one if you sell in two.
What does a lower rate do to the cash flow?
One line of the property’s arithmetic moves and the rest sit still. The example is a $250,000 house bought two years ago with 20% down on a 30-year loan at 8.25%, the example’s own rate. It rents for $2,750 a month, carries $3,000 of property taxes and $1,400 of insurance a year, and sets aside 5% of rent for empty weeks, 5% each for maintenance and the CapEx reserve, and 8% for property management. Two years of payments leave $196,685 owed. Refinancing that balance into a new 30-year loan at 7.5% is the only change.
| At 8.25% | At 7.5% | |
|---|---|---|
| Rent collected, after 5% empty | $2,613 | $2,613 |
| Property taxes | −$250 | −$250 |
| Insurance | −$116 | −$116 |
| Maintenance (5%) | −$138 | −$138 |
| CapEx reserve (5%) | −$138 | −$138 |
| Property management (8%) | −$220 | −$220 |
| Mortgage | −$1,503 | −$1,375 |
| Cash flow each month | +$248 | +$376 |
These are example figures, not a quote.
The mortgage falls from $1,503 to $1,375, and the cash flow climbs from $248 to $376 a month. At an assumed 2% of the new loan, the closing costs come to $3,934, so the saving covers them in about 31 months. Sell in month 20 and the refinance cost you money.
How much equity do you need to refinance a rental?
Lenders cap the new loan against what the house is worth now, not what you paid for it. Freddie Mac’s limits for a conforming mortgage allow a no cash-out refinance of a one-unit investment property up to 85% of value, and a cash-out refinance up to 75%. For two to four units the same table allows 75% and 70% (Freddie Mac, maximum LTV requirements).
The example house grows at the calculator’s 3% a year, so after two years it is worth $265,225, and the $196,685 balance is 74% of that. It clears the 85% line for a rate-and-term refinance easily. It also clears the 75% cash-out line, with about $2,200 of room. Those are Freddie Mac’s ceilings, and any one lender can set its own lower.
A refinance is underwritten much like a purchase, so the file looks familiar: what lenders ask an investor for covers the credit score, the reserves and the rest. If you bought the house recently, check how long you have to wait before refinancing before you check anything else.
Can you take cash out at the same time?
Keeping the lower rate and taking cash are two different loans. Fannie Mae calls the no-cash version a limited cash-out refinance, and its selling guide lists what the proceeds may cover: paying off the existing first mortgage, the closing costs, points and prepaid items, a subordinate loan used to buy the property, and a handful of narrower items. Cash back to you is capped at “the greater of 1% of the new refinance loan amount or $2,000” (Fannie Mae B2-1.3-02, dated 10/08/2025).
On the example’s $196,685 loan, 1% is $1,967, so the $2,000 figure is the cap. Ask for more than that and it becomes a cash-out refinance, which has to fit under the 75% ceiling instead of the 85% one.
Does a new 30-year loan cost more in the end?
It can, and a payment comparison hides it. The old loan had 28 years left to run. A new 30-year loan starts the clock again, so part of the smaller payment is just a longer spread.
| Payment | Monthly saving | Interest left to pay | |
|---|---|---|---|
| Keep the 8.25% loan, 28 years to go | $1,503 | – | $308,167 |
| New 30-year at 7.5% | $1,375 | $128 | $298,404 |
| New 28-year at 7.5% | $1,402 | $100 | $274,421 |
Keeping the old loan to the end leaves $308,167 of interest to pay. The new 30-year at 7.5% costs $298,404, though it collects that over 30 years rather than 28. Matching the old term saves the most interest, $274,421, and hands back $100 a month instead of $128.
Which one you want depends on what the saving is for. Cash flow argues for the longer term. The interest total argues for the shorter one. The Loan term field takes any number of years, so the two versions are seconds apart.
What to check before you call a lender
Three figures decide this, and an afternoon gets you all of them. Your balance and rate are on your mortgage statement. A rough value comes from recent sales of houses like yours on the same streets. The third is the lender’s quote, and ask for the closing costs in dollars rather than as a percentage, since dollars are what goes into the break-even.
Then run both versions. Put your own rate in the Interest rate field, read the cash flow, change the rate to the quote and read it again. Divide the closing costs by the difference and you have the month you break even. If you are weighing this against buying something else instead, the cash it takes to buy a rental is the other half of that comparison.