Is it worth refinancing a rental property? How to find the break-even month

The break-even formula

Break-even months equals total refinance costs divided by monthly savings. Costs include lender fees, appraisal, title, recording and any points. Savings are the old payment less the new payment, for principal and interest only. Leave taxes and insurance out, since they do not change.

Example a made-up rental loan has a payment of $1,900 a month. A new loan would be $1,750 a month. Savings are $150 a month. Closing costs are $6,000. $6,000 divided by $150 is 40 months, a little over three years.

The trap: restarting the clock

A lower payment can come from a lower rate, a longer term, or both. A longer term lowers the payment while keeping you in debt longer. Compare total interest as well as the monthly payment.

Example a made-up loan with 20 years left is refinanced into a new 30-year loan. The payment drops, but the extra 10 years of payments are a cost the break-even formula does not show. If you plan to sell in five years, the longer term matters little. If you plan to hold, it matters a lot.

Where the costs land in your books

Loan costs on a rental are generally spread over the life of the new loan instead of deducted at once. If you refinance again or sell, the unamortized part may be deductible then, so check with your preparer. See rental loan points and the IRS's Publication 527.

Check the other numbers before you sign

• Prepayment penalty on the loan you are paying off.
• Prepayment penalty and rate type on the new loan.
• Who the borrower will be. Moving a loan into an LLC can raise a due-on-sale question; see moving a rental into an LLC.
• Your cash flow after the change, not only the payment. Ask AI to compare the old and new monthly cash flow from your T12.

If you take cash out, the math changes

• A bigger loan means a bigger payment, even at a lower rate.
• Break-even counts only payment savings, so cash out belongs in a separate decision.
• The rent has to cover the new payment: check the new DSCR before you sign.
• Loan costs may be higher on a cash-out loan than on a rate-and-term loan.

If the point of the refinance is cash, compare the cost of the money with what you would earn using it. Borrowing against a rental to buy another one ties the two properties' risks together: if one stops covering its payment, the other has to help. See the timing rules in cash-out refinance on a rental. Also keep records of how you use the cash. How borrowed money is used can affect whether the interest is deductible, and that is a question for your tax preparer, with the IRS's Publication 527 as a starting point. Finally, ask the lender for a loan estimate in writing so the costs you divide by are real numbers instead of a verbal quote. Keep the old and new loan statements together in the property's file, so you can show later what the refinance changed and when.

How DoorKeeping fits

DoorKeeping holds the rental's income, expenses and loan payments in one place, so the current monthly cash flow you compare against a new loan is one question to Claude or ChatGPT. DoorKeeping does not quote loan rates or arrange refinancing. It costs $2 per unit per month.

Sources

1. IRS, Publication 527, Residential Rental Property, read Oct 31, 2026
2. CFPB, What is a loan-to-value ratio?, read Oct 31, 2026

Questions

How long should I keep a loan after refinancing?

At least past the break-even month, which is the closing costs divided by the monthly savings.

Can I deduct refinance costs on a rental?

Generally they are spread over the new loan's life, and the details depend on your situation. Ask your tax preparer.

Does a lower payment always mean a better loan?

No. A longer term lowers the payment and adds years of interest. Compare total cost and your plan for holding the property.