Refinance Calculator
Calculate whether refinancing your rental property makes financial sense. Compare current loan terms with new terms and determine break-even point.
Current Loan Details
New Loan Details
Leave at 0 for rate-and-term refinance
Estimated closing costs for refinance
Refinance Analysis
Monthly payment with new loan terms
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When to Refinance
Good Reasons to Refinance
- Interest rates have dropped significantly
- You want to shorten your loan term
- You need cash-out for investments or repairs
- You want to remove PMI
- Break-even point is within 2-3 years
Considerations
- Closing costs can be significant
- Resetting the loan term may increase total interest
- Cash-out refinances increase your loan balance
- Lender requirements may have changed
- Consider your long-term plans for the property
How to Decide Whether to Refinance a Rental Property
Refinancing a rental property means replacing your current mortgage with a new one, usually to lower the interest rate, change the loan term, or pull equity out in cash. Unlike a primary residence refinance, the decision for a rental is purely a business calculation: do the monthly savings, over the time you expect to hold the property, exceed the closing costs of the new loan? This calculator answers that question by comparing your current payment against the new payment and computing the break-even point, the number of months of savings it takes to recover your closing costs.
The three numbers that matter most are your monthly savings (current payment minus new payment), your break-even point (closing costs divided by monthly savings), and your expected holding period. If break-even lands at 18 months and you plan to hold the property for another decade, the refinance pays for itself many times over. If you are planning to sell or 1031-exchange the property within two years, the same refinance destroys value.
A Worked Example
Suppose you owe $240,000 on a rental at 7.1% with a monthly principal-and-interest payment of $1,745. A lender offers a new 30-year loan at 6.25% with $4,800 in closing costs. The new payment on $240,000 at 6.25% over 30 years works out to about $1,478, so you save roughly $267 per month, or about $3,200 per year. Dividing the $4,800 closing costs by $267 gives a break-even of about 18 months. Hold the property for five more years and the refinance nets you around $11,200 after costs, before accounting for the reset amortization schedule.
That last caveat matters. Restarting a 30-year clock on a loan you have paid down for several years can increase total lifetime interest even when the monthly payment drops. If your goal is total interest savings rather than monthly cash flow, compare a 20- or 15-year term in the calculator, as the payment may rise slightly while the total interest falls dramatically.
Cash-Out Refinancing for Landlords
Many landlords refinance not to lower the payment but to extract equity for the next acquisition. In a cash-out refinance the new loan exceeds your current balance, and you receive the difference minus closing costs. The calculator shows your net cash-out so you can weigh it against the higher payment. Keep in mind that lenders typically cap cash-out refinances on investment properties at 70 to 75 percent of the appraised value, and the interest on the cash-out portion is generally only deductible against rental income if the proceeds are used for the property or another investment. Confirm the details with your tax professional.
Frequently Asked Questions
When does refinancing a rental property make sense?
Refinancing usually makes sense when the monthly savings recover your closing costs within two to three years and you plan to hold the property longer than that break-even period. A rate reduction of 0.75 to 1 percentage point is often enough to justify the costs on a typical rental loan balance, but always run the break-even math rather than relying on a rule of thumb.
How is the refinance break-even point calculated?
Break-even is your total closing costs divided by your monthly payment savings. For example, $4,800 in closing costs divided by $267 of monthly savings equals roughly 18 months. If you expect to sell or exchange the property before you reach break-even, refinancing will cost you more than it saves.
Are rental property refinance rates higher than primary residence rates?
Yes. Lenders typically price investment property loans 0.5 to 0.875 percentage points above owner-occupied rates because rentals carry higher default risk. Most lenders also want at least 25 percent equity remaining after the refinance, and cash-out refinances on rentals often require 30 percent.
What is the difference between a rate-and-term and a cash-out refinance?
A rate-and-term refinance replaces your existing loan with a new balance roughly equal to what you owe, changing only the rate or the term. A cash-out refinance borrows more than your current balance and gives you the difference in cash, which landlords often use for repairs or the down payment on the next property. Cash-out loans carry slightly higher rates and increase your total debt on the property.