Top Tips for Refinancing Your Investment Property

18 July 2025

Refinancing an investment property can be a game-changer, but it’s not something you should jump into without careful planning. Whether you're looking to lower your mortgage rate, free up some cash, or shorten your loan term, the right refinancing strategy can boost your returns and improve your portfolio’s long-term profitability.

But how do you actually go about it? What pitfalls should you avoid? And most importantly, how can you make sure you're getting the best deal possible? Let’s break it all down.

Why Refinance an Investment Property?

Before we dive into the tips, let's answer the big question—why would you even refinance your rental property?

For starters, here are a few major reasons why property investors consider refinancing:

- Lower Interest Rates – If market rates have dropped since you took out your original loan, refinancing can cut your monthly payments.
- Cash-Out Refinance – Need extra funds for renovations, a new investment, or consolidating debts? You can leverage your home equity.
- Shorter Loan Term – Paying off your mortgage faster helps you build equity quicker and saves on interest.
- Switching from Adjustable to Fixed Rates – Locking in a fixed rate can protect you from future market fluctuations.
- Improving Cash Flow – Lower rates, new terms, and lower monthly payments can boost your property’s profitability.

Sounds good, right? Now let’s go over the best ways to make refinancing work in your favor.

1. Check Your Credit Score Before Anything Else

Your credit score is one of the first things lenders will check when reviewing your refinancing application. If your score has dropped since your original mortgage, you might not qualify for the best interest rates.

Before you apply, take a look at your credit report. Are there any inaccuracies? Any debts you can pay off quickly to improve your score? A small boost in your credit score could lead to a lower interest rate and save you thousands over time.

2. Know Your Equity Position

Lenders typically require a loan-to-value (LTV) ratio of 75% or lower for investment property refinancing. That means if your property is worth $300,000, you’ll need at least $75,000 in equity.

If your property has appreciated in value, you might have more equity than you realize—giving you the opportunity to qualify for better refinancing terms or even a cash-out refinance.

3. Shop Around for the Best Rates

Never settle for the first refinancing offer you get. Mortgage rates vary from lender to lender, and even a slight difference in interest rates can make a huge impact over time.

Check with multiple banks, credit unions, and even online lenders. Compare their offers, including interest rates, fees, and loan terms. Sometimes, working with a mortgage broker can help you uncover deals you wouldn’t find on your own.

4. Consider the Costs of Refinancing

Refinancing isn’t free. In fact, closing costs can range between 2% and 5% of your loan amount. That means if you’re refinancing a $200,000 loan, you could be looking at anywhere from $4,000 to $10,000 in fees.

These costs typically include:
- Appraisal fees
- Loan origination fees
- Title insurance
- Attorney fees
- Prepayment penalties (if applicable)

Before moving forward, calculate your break-even point—the time it will take for your monthly savings to outweigh the upfront refinancing costs. If you plan on holding the property long enough to recover these costs, refinancing might make sense.

5. Decide Between a Fixed or Adjustable Rate

If you originally took out an adjustable-rate mortgage (ARM), you may want to lock in a fixed rate while interest rates are still favorable. Fixed-rate loans provide stability, ensuring your monthly payments remain predictable over the long run.

On the other hand, if you plan on selling the property soon, sticking with an ARM might make sense—especially if you can secure a lower rate in the short term.

6. Cash-Out Refinancing: Is It Worth It?

A cash-out refinance lets you tap into your home equity and pull out cash for other investments or expenses. While this can be a smart move, remember—you’re increasing your loan balance, which means higher payments.

Consider using cash-out refinancing for:
- Buying another investment property
- Renovating or upgrading your rental property
- Paying off high-interest debts

But don’t use it for frivolous spending. Increasing your debt without a solid financial plan can put you at risk down the road.

7. Make Sure Your Rental Income Supports Your Loan

Lenders will assess your debt-to-income (DTI) ratio before approving refinancing. If your rental property isn’t generating enough income to cover the new loan payments, you may struggle to qualify.

To strengthen your position:
- Increase rent where possible
- Reduce operating expenses
- Provide proof of consistent rental income

Some lenders will also factor in your personal income, but having a profitable rental property puts you in a much stronger position.

8. Gather All Necessary Documentation

Refinancing an investment property requires more paperwork than refinancing a primary home. Be prepared to provide:
- Tax returns (usually from the past two years)
- Profit and loss statements for the rental property
- Lease agreements to prove rental income
- Recent mortgage statements
- Bank statements

Having these documents ready can speed up the refinancing process and improve your chances of securing better terms.

9. Keep an Eye on Interest Rate Trends

Mortgage rates fluctuate based on the economy, inflation, and Federal Reserve policies. Timing your refinance when interest rates are low could save you significant money over time.

If rates are expected to rise, locking in a lower rate sooner rather than later might be the best move. On the other hand, if rates are expected to drop, waiting a few months could pay off.

10. Work With an Experienced Mortgage Professional

Refinancing an investment property isn’t always straightforward. Working with an experienced mortgage broker or loan officer can help you navigate the process and uncover the best deals.

A good professional will:
- Explain all your refinancing options
- Help you compare lenders
- Guide you through the application and paperwork
- Negotiate better terms on your behalf

Take the time to choose a broker or lender who understands investment properties and has your best interests in mind.

Final Thoughts

Refinancing your investment property can be a powerful tool to increase cash flow, lower expenses, and build long-term wealth. But to make it work to your advantage, you need to do your homework.

- Check your credit score and equity
- Compare loan offers from multiple lenders
- Factor in closing costs and long-term savings
- Decide whether a fixed or adjustable rate fits your strategy
- Ensure your rental income aligns with lender requirements

With the right approach, you can secure better terms and maximize returns on your real estate investment for years to come.