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When you've built home equity and generated strong rental income, it's time to consider how to enjoy lower monthly mortgage payments and receive funds to expand your investment portfolio. The best way to do this is to refinance your investment property with a reputable mortgage lender who can help you find the best rates on the market.

This article explains the refinance process, types of refinancing, how the process works, and why it's a sound financial decision. 


What is refinancing?

When you refinance an investment property, you are closing out your existing mortgage and taking out a new loan, which covers the remainder of your original mortgage. This can help you get better interest rates and lower your monthly mortgage payments, and it can also help you leverage the property's accumulated equity for repairs or new purchases.



Types of Investment Property Refinancing

There are two main types of refinance investment property loans: rate and term refinance and cash out refinance.

Rate and Term Refinance

When you refinance investment property using a rate and term refinance, you change the interest rate and, in some circumstances, the loan term without adjusting the principal. Your original loan is closed, and a new loan is taken out for the same amount but with a lower rate and, sometimes, a shorter term. You won't get a lump sum based on property value as you would with a cash-out refinance.

You can enjoy a lower interest rate, reducing your mortgage payment and boosting your gross monthly income. This is an excellent rental property refinance option for those who have not yet built up significant home equity but who want to reduce their monthly payments and pay off their loan amount sooner.

Cash Out Refinance

With a cash-out refinance, you replace the original loan with one that is larger than the initial sum but less than the home's value. Unlike a home equity loan, which is a second mortgage, you are eliminating your old loan and opening a new primary mortgage.

You then receive the difference between the home value and the loan amount (the property's equity) as a lump sum, which can be used to purchase additional investment property, pay off other personal loans like credit card debt, or complete property improvements on the rental, or even on your primary residence.

Cash-out refinance works well for those who have held a property for a long time, building up significant equity they would like to utilize for other purposes. At least 30% equity is a good rule of thumb, though you can pull out equity when you have 20%.



Why Refinance an Investment Property

Refinancing your real estate investments has multiple benefits, particularly in regard to lowering your monthly obligations and building a healthier cash flow. As the refinancing process is quite simple, one can easily save thousands of dollars over the life of their loan. 

Increase Property Value

There are several ways in which refinancing a rental property can increase property value. Firstly, lowering your interest rate allows you to build equity faster, as you will be paying more off the principal each month. Secondly, if you refinance a rental property with a cash-out refinance, you can reinvest that money into the property through repairs, increasing its value.

Enhance Cash Flow

Because you'll be paying less each month thanks to a lower interest rate, you lower your debt-to-income ratio and will be able to save more of your rental payments. While some costs, such as homeowners insurance, will be the same, the reduced interest will significantly improve your earnings from rental income.

Decrease Mortgage Term

Should you choose to lower your mortgage term when you refinance a rental property, you'll be able to pay your loan off faster and own your rental home free and clear. This makes it easier to jump into the housing market when prices are advantageous.


Why You Should Work With Visio Lending 

Thousands of investors have trusted Visio Lending to help them refinance a rental property thanks to our easy, seamless process and advantageous investment property refinance rates.

Visio Lending's laser-like focus and investment property loan expertise simply cannot be matched. Would you go to a foot doctor for a headache? Or an employment attorney for a divorce? There is something to be said about going to a specialist for the specialty you need.

Let's get specific. Here are a few ways Visio Lending's focus on investment properties can help you:

  • •   Insurance – Insurance on a rental property is quite different from your personal home. Even many insurance agents who don't regularly deal with the investment property refinance process don't understand the nuances. Visio Lending has a dedicated team that can help you properly insure your rental property investment and protect you against some of the not-so-obvious risks you may encounter as a real estate investor. 

  • •   Vacation Rentals – Visio Lending is one of the leading financiers of vacation rental properties in the U.S. Underwriting these properties for permanent mortgage finance is more of an art than a science. Nonetheless, we have developed a proven methodology to underwrite these properties to get you the best terms possible while also writing a responsible mortgage loan.

  • •   Cross-defaults – Many investment property owners also engage in fixing and flipping properties. If that's you, you might think twice about financing your rentals and flips with the same lender. Flips are subject to much greater market risk than rentals. Even the best flippers have deals that go sideways or the wrong way. Many lenders include cross-default provisions in their loan documents that provide that if you default on one loan, it also counts as a default on all of your other loans. You don't want to have a bad flip deal trigger a default on your rental properties. 

How to Refinance Investment Property

Rental property refinancing is slightly more complicated than opening a mortgage for the first time, making it all the more important to find mortgage lenders with an easy, streamlined process. Our loan officers work entirely with investors and are deeply familiar with rental property, so we'll be able to find excellent rates geared to your specific needs. 

Build Equity

You need to pay close attention to how much equity you have before exploring a refinance of your rental property. Typically, you need to have 20% equity, even if you're not pursuing a cash-out refinance.

Continue to pay down your loan balance over time and watch the current interest rates closely to see when it's advantageous to refinance.

Collect Documentation

Most mortgage lenders, especially traditional lenders bound by Fannie Mae guidelines, will require extensive documentation for a rental refinance, including plentiful personal finance information like bank statements, pay stubs, and tax returns. This is because much of the mortgage industry is based on the loan process for consumers, and so it makes little distinction between refinances for investment properties and primary residences.

The refinancing process with Visio Lending is different: we understand that time is money when it comes to rental property. We base our refinancing approval on the debt service coverage ratio (DSCR) for the investment in question rather than your personal debt-to-income ratio. This means you don't need to show bank statements, tax returns, or income documentation. 

Check Refinance Rates

As you did when purchasing your primary residence or first investment property, it's important to compare refinance rates from multiple lenders before refinancing a rental property to find the best interest rate.

When you compare lenders, look specifically at whether their loan programs are mostly geared toward real estate investments or primary residences, as this will make a significant difference in their rates and processes. 

Get an Appraisal

Regardless of whether you're pursuing a rate-and-term or cash-out refinance, your lender will require an appraisal of the property. They will do this to ascertain the current market value of your rental property and, consequently, your loan-to-value ratio. Visio Lending will also require this, even though we use a vastly simplified process that relies on the debt service coverage ratio rather than your personal financial circumstances.

Loan Closing Costs

As with other loans, you will need to pay closing costs on your refinancing. These will be around 2% to 6%, similar to that of your initial mortgage. 



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Rental Property Refinancing FAQs

Refinancing a rental property can be more complicated, so it's important to work with good mortgage lenders. There are more stringent requirements for the loan-to-value ratio. In addition, if you're seeking a cash-out refinance, you need to have significant home equity to make it worthwhile. You'll also typically need a higher credit score than you needed for your current mortgage. 

According to Fannie Mae rules, you must wait at least six months before you sign up a property for a cash-out refinance, but you can make a rate-and-term adjustment almost immediately. For a rate and term adjustment on an FHA loan, you have to wait seven months. For a cash-out refinance for FHA loans, you have to wait a whole year. The only exception to these rules is the delayed financing exception, which is when you purchase a property upfront with your cash reserves and then complete a cash-out refinance to reimburse yourself for the initial investment. This only works if you did not borrow money for the home.

You typically need pretty good credit to refinance. Visio Lending requires a 680 or more. If you want the best interest rate, strive for a 740 or higher.



The process of refinancing a loan is very similar to financing a purchase. See our process for details on Visio refinances.




There are many pros of refinancing a rental property, including getting better terms and rates, lowering your monthly payments, and accessing equity from your home for other investments. Some cons to consider are that you will have to pay fees and closing costs on a new loan.

The rule of thumb is that investment property rates are usually between 100 and 400 basis points higher compared to rates on a primary residence mortgage. We have a dedicated page for the latest investment property mortgage rates.

The documents required to refinance a rental property depend on the lender. Visio Lending does not require tax returns or income verification. See our list of documents needed to close a loan.

There are no hard limits on how often you can refinance your investment properties, but there are some items to consider. First, most loans on investment properties have prepayment penalties. Whether to refinance a loan with a prepayment penalty depends on performing a break-even analysis — in other words, how much will you pay upfront in fees and prepayment penalties, and how long will it take you to recoup that amount through savings or returns on reinvestment of proceeds from the new loan?

Second, even if you don't have a prepayment penalty or it has expired, you likely will have some fees and other costs associated with refinancing. Again, you'll want to perform a break-even analysis to determine how long you'll need to hold the property to make the refinance worthwhile.

For example, let's assume you'll pay $5,000 in fees and other expenses (appraisals, title costs, etc.) to get a refinance, and you'll save $250 each month with the new loan. $250 each month until you get back the $5,000 in expenses means you will break even after 20 months. If you think you're going to hold the property for at least 20 months, the refinance probably makes sense. If you're considering selling the property later in the year, you might not proceed with refinancing.