Refinancing replaces your current mortgage with a new one — to cut the rate, change the term, or pull out equity in cash. Done at the right moment it adds real dollars to your cash flow every month; done carelessly it resets your amortization clock and burns thousands in closing costs for nothing.
The three reasons to refinance
Rate-and-term refinances lower the payment or shorten the payoff. Cash-out refinances convert equity into capital for the next purchase or a renovation — lenders on investment property typically cap cash-out around 70–75% loan-to-value. The third reason is structural: replacing a balloon or adjustable loan with fixed, long-term debt to remove maturity risk.
Running the break-even
Closing costs on an investment-property refinance commonly run 2–5% of the loan amount. Break-even months = closing costs ÷ monthly savings — that's how you know whether a refinance pays. If you won't hold the property comfortably past break-even, don't refinance. A common trigger is an interest rate drop of 1% or more below your current rate, but the break-even math is the real test — a large loan can justify a smaller rate drop.
Worked example
Your $240,000 balance is at 7.5%; today's rate is 6.25%. New payment drops by about $205/month. Closing costs are $6,400. Break-even = $6,400 ÷ $205 ≈ 31 months. If you plan to hold five more years, the refinance saves roughly $5,900 after costs — worthwhile. If you might sell in two years, skip it.
When this rule of thumb breaks
The break-even ignores the amortization reset: a new 30-year loan shifts your payment mix back toward interest, so compare total interest over your expected hold, not just the monthly payment. Cash-out refis can also push your loan-to-value high enough that a soft market leaves you unable to sell or refinance again. And investment-property rates run 0.5–0.875% above owner-occupied quotes — check the right sheet before you get excited.