How to refinance an investment property: Complete guide

You could save thousands of dollars over your loan's lifetime by refinancing your investment property. Refinancing might be the smart move your investment portfolio needs to lower monthly payments, tap into equity, or boost cash flow.

Investment property loans come with higher interest rates than primary residences. Market rate changes and climbing property values create excellent opportunities for an investor to refinance their rental property. A timely investment loan refinance helps secure better terms, boosts rental income compared to expenses, and builds equity faster. Experienced investors can use a cash-out refinance on their property to fund new real estate purchases or make property improvements.

This piece walks you through the essentials of refinancing an investment property. We'll cover the benefits, lender requirements, and application process to help you maximize your investment property's returns.

Benefits of refinancing your investment property

Refinancing an investment property creates several financial opportunities that can boost your real estate portfolio. Smart management of these benefits can improve your investment returns by a lot and pave the way for future growth.

Lower interest rates

Most investors choose to refinance to secure better interest rates. Investment properties usually carry rates 0.5%-0.75% higher than primary residences because lenders see them as higher risk. Mortgage lenders know that borrowers will prioritize their personal home payments over investment properties during financial hardship.

You might qualify for a lower interest rate through refinancing if:

— You've built a successful track record managing your rental property cash flow
— Your income adequately covers both your primary and investment property payments

Take time to compare your current rate with offers from multiple lenders. Many people refinance just to "save" money, but it makes sense to consider how this decision fits your broader investment strategy. A small rate reduction can lead to big savings throughout your loan term.

Change loan terms

Your mortgage terms can line up better with your investment goals through refinancing. Shortening your loan term will increase monthly payments but help you own the property outright sooner while paying less interest overall.

A longer loan term might reduce monthly payments and improve immediate cash flow—though you'll likely pay more interest over time. Investors who want stability often switch from an adjustable-rate mortgage (ARM) to a fixed-rate option. This change gives more predictable payments and makes cash flow management easier.

These changes give you the flexibility to customize your financing based on your current financial situation and long-term goals.

Increase property value

A cash-out refinance lets you reinvest in your property to boost its market value and rental income. Smart renovations often bring excellent returns when focused on improvements that tenants value most.

Effective property upgrades include:

— Adding living space through home additions
— Upgrading kitchens with modern appliances and finishes
— Renovating bathrooms or adding additional bathrooms
— Finishing basements to create separate rental units
— Improving energy efficiency through HVAC upgrades

These improvements help attract better tenants and justify higher rents while building equity faster. Better property conditions create happy renters, which helps reduce turnover costs.

The refinancing process can also fund your portfolio expansion. You'll get capital for down payments on additional properties to accelerate your investment growth strategy.

How to refinance an investment property

Refinancing an investment property may demand more effort than refinancing your primary residence. A clear understanding of each step will help you navigate the process smoothly and achieve the best results.

Getting a home appraisal

Your first step requires a professional appraisal to determine your property's current market value. This crucial assessment shapes your loan-to-value (LTV) ratio, which must stay at or below 75% for investment properties.

Let's look at the numbers: A property worth $250,000 with a $185,000 loan balance gives you an LTV of 74% with 26% equity—this usually meets refinancing requirements.

Your property's appraisal value can improve when you:

— Fix minor repairs and maintain the property before the appraiser visits
— Keep records of your property improvements
— Present data on recent comparable sales nearby
— Keep the property clean and presentable

Choosing the right lender

Different lenders offer varying terms for investment property refinancing. More seasoned lenders often set strict credit requirements, while smaller lenders might look beyond just credit scores.

Take time to evaluate interest rates, closing costs, and specific investment property programs to find the perfect fit.

Applying

You'll need these documents to complete your application:

— Recent W-2 forms or pay stubs
— Personal and business tax returns from the last two years
— Rental income verification including — Schedule E forms
— Current lease agreements

Most lenders want to see a debt-to-income (DTI) ratio under 45% and enough cash reserves to cover six months of mortgage payments. These tough requirements exist because investment properties carry more risk than primary homes.

The refinancing process needs careful attention to detail and plenty of paperwork (although you could work with Better who makes the process easy, and all online). Your thorough preparation can boost your approval chances and help secure terms that maximize your investment returns.

Streamline the process with Better

Better makes the process quick and easy with our online pre-approval. In as little as 3 minutes, you could get a custom rate quote with no credit impact. If you decide to move forward, we can handle everything from the appraisal to underwriting, all online.

Requirements for refinancing an investment property

Lenders set tougher rules when you refinance investment properties compared to primary homes. A good grasp of these requirements will help your application succeed.

Credit score

You'll need at least a 620 credit score to refinance an investment property. Better scores mean better interest rates and terms. Investment properties face more scrutiny than primary home loans.

Getting past credit requirements can be tough because:

— Different lenders score credit differently, and big banks want higher scores
— Your score drops with each refinance application since lenders get nervous about multiple tries
— The three credit reporting bodies—Equifax, TransUnion, and Experian—each score differently

Your score will look better if you pay bills when due, check your credit reports for mistakes, and cut down high-interest credit card debt.

You can get a free customized rate quote with Better in as little as 3 minutes without impacting your credit score.

DTI ratio

Your debt-to-income ratio shows what percentage of your monthly income goes to debt payments. This ratio affects your chances of refinancing. Most lenders cap DTI at 50% for investment properties.

A DTI of 36% or less marks you as a safe bet for lenders. The ratio helps them figure out how much you can borrow and if you'll handle more debt well.

High equity

Your investment property needs at least 25% equity, which means a loan-to-value ratio of 75% or less. Primary homes often get away with 20% equity, but investment properties typically need more.

The lender will also want to see:

— Enough cash saved for six months of mortgage payments
— No more than 10 financed properties
— Clear goals for your refinance

These tough rules exist because investment properties carry more risk. Lenders know that if money gets tight, people pay their home mortgage first and investment properties second.

Refinance investment property FAQs

Property investors often ask specific questions about refinancing, especially when you have tax implications and documentation to deal with. These real-world concerns help determine if refinancing makes financial sense in your case.

Can I tax deduct a refinance?

Investment property refinancing costs might be tax-deductible based on how you use the funds. You can claim deductions on borrowing expenses for investment properties that generate income.

You may be able to deduct these refinancing costs:

— Loan application fees
— Mortgage discharge and exit fees
— Valuation costs and title search fees
— Mortgage broker fees
— Loan registration costs
— Break costs (for fixed-rate loans)

All the same, you can't deduct everything. Stamp duty becomes a capital expense during investment property refinancing and isn't tax-deductible. It also means interest isn't deductible if you refinance to fund personal expenses like vacations.

Borrowing expenses under $100 can be claimed in the same financial year. Other deductions spread across five years or the loan term, whichever comes first.

Always speak to a tax professional for personalized advice and answers to your questions.

What documents are required to refinance?

Typically you need more documentation to refinance an investment property than a primary residence. Lenders usually ask for:

— Recent pay stubs or W-2 forms
— Personal and business tax returns from the last two years
— Rental income verification including — Schedule E forms
— Current lease agreements for the property
— Mortgage statements
— Proof of assets
— List of current debts
— Credit report

So keeping your financial records in order becomes significant for smooth refinancing. Most lenders need proof of six months' worth of mortgage payments in cash reserves to show you can handle financial hardships.

Your refinance application could face delays or rejection without proper documentation. Getting these materials ready beforehand helps streamline the process by a lot.

How do I tap my home equity as cash without giving up my interest rate?

Many investors want to access their home equity but hesitate to refinance because it means losing their existing mortgage rate—especially if it’s lower than current market rates. The good news? You don’t have to refinance to turn your home equity into cash.

Instead, consider a home equity line of credit (HELOC) or a home equity loan (HELOAN). These second-lien products let you borrow against the equity you’ve built without changing your original mortgage. That means you keep your current interest rate on your primary loan while still accessing funds for renovations, repairs, or additional investments.

— A HELOC offers flexible access to funds, working like a credit card with a revolving balance and an interest-only draw period.

— A home equity loan provides a lump sum with a fixed rate and term, ideal for large one-time expenses.

Both options let you leverage the value of your property without resetting your entire loan—making them smart tools for investors who want liquidity without giving up their favorable loan terms.

How soon can I refinance a rental property after purchase?

Most lenders require a seasoning period of 6 to 12 months before you can refinance a rental property. However, exceptions exist, particularly if you’ve added significant value through renovations. You’ll also need to demonstrate consistent rental income and meet all standard qualification guidelines.

Will refinancing affect my ability to buy another investment property?

Yes, refinancing can impact your debt-to-income ratio (DTI), which lenders evaluate when considering future loan applications. Taking cash out increases your loan balance and may raise your monthly payments—potentially affecting your ability to qualify for additional loans. However, if used strategically (like boosting down payments or improving another property), a refinance can also enhance your portfolio.

Should I refinance, get a home equity loan, or open a HELOC on my rental property?

It depends on your financial goals and how you plan to use the funds.

— A refinance replaces your existing mortgage with a new one—potentially changing your rate, term, and monthly payment. This can be a smart move if current rates are lower than what you have now, or if you want to switch from an adjustable to a fixed rate. But if you already have a low rate, refinancing could increase your overall cost of borrowing.

— A home equity loan gives you a lump sum at a fixed interest rate and term. It’s ideal if you know exactly how much you need—for example, to fund renovations or put a down payment on another property. Since it’s a second loan, it lets you access your home equity without changing the terms of your original mortgage.

— A HELOC (home equity line of credit) works more like a credit card tied to your property’s equity. You can draw funds as needed during the draw period, often making interest-only payments. This is useful for ongoing expenses or investment opportunities that come up over time.

If your current mortgage rate is low and you're looking for flexibility, a HELOC or home equity loan may be a better fit than refinancing.

Conclusion

Refinancing an investment property can be a smart move for real estate investors who know how to direct the process. Lower interest rates cut down costs over time, and flexible loan terms let you customize based on your investment goals. On top of that, cash-out refinancing helps improve property values through renovations or lets you buy more properties.

The refinancing trip for investment properties needs more work than primary homes, but it's doable with the right steps. You'll need to get your property ready for a full appraisal. Take time to check different lenders for the best investment property terms. Make sure you have all the paperwork ready to back up your application.

Getting approved by lenders is the toughest part of investment property refinancing. Your credit score needs to be higher, and you'll face stricter rules for debt-to-income ratio and equity than with regular homes. Good preparation before you apply makes a big difference in getting approved and securing better rates.

Tax benefits add extra value to your refinancing plan. You can deduct many refinancing costs for investment properties, which makes this approach even more financially sound. A tax professional can help you get the most out of these benefits for your specific case. You can get a free rate quote to see your potential savings from refinancing.

Your long-term investment strategy should guide your refinancing decision. Look at your potential savings against closing costs, how long you plan to keep the property, and what's happening in the market right now. This knowledge helps you make a choice that will strengthen your real estate portfolio for years ahead.