Cash-Out Refi on a Rental: When the Math Works

The rate on a cash-out refinance is not the cost of the cash. You replace the entire loan to extract a slice of the equity, so the old balance gets repriced along with the new money. The honest cost is the change in your payment divided by the dollars you walk away with.

In the example worked below, an owner pulls $80,000 out of a rental at an example 7.50% rate. The payment rises $706 a month, which is 10.6% a year on the cash received, and the interest bill alone rises by 12.1% of it. Whether that is a good trade depends on what the $80,000 does next.

What a cash-out refi on a rental actually costs in 2026

This post gives no current rates, because any figure printed here would be stale by the time you read it. What holds steady is the structure of the cost, which has four layers.

The investment property premium. A loan on a rental prices above the same loan on a home you live in. Lenders charge for the higher default risk of non-owner-occupied property.

The cash-out add-on. Inside the rental category, a cash-out refinance prices above a purchase loan or a simple rate-and-term refinance. Conventional pricing works off a grid of adjustments by loan-to-value and credit score, and the cash-out rows are the expensive ones. The add-on grows as the loan-to-value rises, so a quote at 75% can be noticeably worse than a quote at 65%.

Closing costs. Appraisal, title, lender fees and prepaid items. A rule of thumb is 2% to 5% of the new loan amount, and it is only a rule of thumb. Get a loan estimate. Rolling the costs into the loan does not make them free, because you pay interest on them for as long as the loan lives.

The rate you give up. This is the biggest layer for anyone who financed when rates were lower, and it never shows on a loan estimate. Every dollar of the old balance moves from the old rate to the new one.

To see the first two layers in real numbers, ask one lender on one day for three quotes on the same property: cash-out at the maximum loan-to-value, cash-out at a loan-to-value 10 percentage points lower, and a rate-and-term refinance. The spread between them is the current price of extraction. The fourth layer you can compute yourself, and the worked example shows how.

The LTV and seasoning rules for investment property

Treat these as things to confirm with a lender, since program guidelines get revised.

• Loan-to-value caps. Conventional cash-out refinances on investment property have long been capped at 75% of appraised value for a single unit and 70% for two to four units. DSCR lenders commonly land in the same 70% to 75% range and set their own limits.
• Seasoning. Conventional guidelines set waiting periods before a cash-out is allowed, measured both by how long you have owned the property and by how long the existing mortgage has been in place. In recent years those periods have been 6 and 12 months. Many DSCR and portfolio lenders are shorter, and some will lend on a new appraised value sooner, which is why they dominate BRRRR refinances.
• Delayed financing. If you bought with cash, conventional guidelines have an exception that allows a cash-out soon after purchase, limited to roughly what you paid plus costs. It returns your cash, and it does not let you borrow against a quick jump in value.
• Qualifying. A conventional lender underwrites you: debt-to-income, credit and reserves, with the rental's income usually credited at 75% of the lease or market rent. A DSCR lender underwrites the property and wants the rent to cover the new payment, with minimums commonly 1.0 to 1.25.

The appraisal controls everything. A value that comes in $20,000 light on a 75% loan cuts your proceeds by $15,000, and you find out after paying for the appraisal.

The trade: cheaper equity out, richer payment forever

Measured by rate alone, a cash-out refinance is usually the cheapest way to borrow against a rental. It is a first lien, it is fixed for 30 years, and it prices below second liens and credit lines. That is the "cheaper equity out" half of the trade.

The other half is that the payment change is permanent and applies to the whole balance. Three things happen at once:

• The new money is borrowed at the new rate.
• The old balance is repriced to the new rate.
• The amortization clock resets to 30 years, which lowers the payment and slows principal paydown.

The third item flatters the payment comparison. A loan with 22 years left is paying down principal quickly. Restart it at 30 years and less of each payment builds equity. So look at two numbers: the cash cost (payment change over cash out) and the interest cost (interest change over cash out). The second is the truer price of the money.

Worked example: pulling $80,000 from a $150,000 equity position

All figures are an example with labeled example rates.

A single family rental is worth $260,000. The existing loan has a $110,000 balance at an example 4.50%, with 22 years remaining and a principal and interest payment of $657. Equity is $150,000. The owner refinances to 75% of value at an example 7.50% for 30 years.

Now the before and after.

Cash cost of the extracted dollars: $706 x 12 = $8,472 a year. Divided by $80,000, that is 10.6%.

Interest cost of the extracted dollars: $9,675 / $80,000 = 12.1%.

The interest figure breaks into three pieces that add up exactly:

So a loan quoted at 7.50% delivers money that costs 12.1%. A third of the bill is the penalty for disturbing a 4.50% loan. The cash cost looks lower, at 10.6%, only because the clock was reset: the old loan retired about $2,997 of principal in its next year, and the new one retires about $1,798.

The size of that penalty depends entirely on the rate you are giving up.

When the old rate equals the new rate, the cost falls to 8.0%, which is the new rate plus the drag from financed closing costs. When the old rate is above the new rate, the refinance lowers the cost of the old balance and the extracted cash can come out cheaper than the quoted rate. That is the situation where cash-out refinancing is an easy yes.

When the freed capital beats the higher payment

The $80,000 has a hurdle. It must earn more than 12.1% in total return to make you richer, and more than 10.6% in cash to keep your monthly income from falling. Few ordinary rentals clear the second bar, so be clear about which goal you are pursuing.

Take a plain redeployment as an example. The $80,000 funds a second rental at $270,000: $67,500 down, which is 25%, plus $12,500 for closing costs and reserves. The new loan is $202,500 at the same example 7.50%. Suppose the property nets $250 a month after all costs and debt service.

Two conclusions fall out of this table.

Your monthly income drops. The portfolio gains $3,000 of cash flow and takes on $8,472 of added payments, a net decline of $5,472 a year. Anyone selling this move as a cash flow strategy has not done the subtraction.

Your net worth grows only if prices rise. With 3% appreciation the capital earns 16.2% against a 12.1% cost. With flat prices it earns 6.1% and you lose ground every year. A plain cash-out into a plain rental is a bet on appreciation funded by your existing cash flow.

The cases where the freed capital wins on firmer ground:

• The old rate is at or above current rates, so the repricing penalty is zero or negative.
• The money goes into forced appreciation, where a renovation creates value you control instead of waiting on the market. The refinance step in a BRRRR works this way, and how to model the BRRRR refinance at current rates covers that case in detail.
• The money retires debt that costs more than 12.1%, such as hard money or a private note.
• The property's DSCR stays healthy after the new payment. In the example it falls from 2.28 to 1.10. One vacancy now puts the property underwater on cash flow, where before it could have absorbed months of it.

Cash-out vs HELOC vs selling: the quick chooser

The alternative most owners overlook is a second lien that leaves the first mortgage alone. An $80,000 line at an example 9.00% costs $600 a month interest-only, or $7,200 a year. That is a 9.0% cost against the refinance's 12.1%, because the $110,000 at 4.50% stays untouched. The line carries its own problems: a variable rate, fewer lenders willing to write one on a rental, and a lender who can freeze it. A HELOC against a residence or a rental is its own strategy with its own math, and it deserves a separate model.

Selling is the only option that releases all of the equity and ends the payment. It is also the only one that triggers tax. A 1031 exchange defers that tax if you identify a replacement within 45 days and close within 180, with a qualified intermediary holding the funds. Loan proceeds from a refinance are not income, which is the main reason owners refinance instead of selling.

Next steps:

1. Pull your current loan statement and note the balance, rate and years remaining.
2. Get same-day quotes for cash-out at the maximum loan-to-value and at 10 percentage points lower, plus a second-lien quote if you can find one.
3. Compute both costs: payment change over net cash, and interest change over net cash.
4. Write down what the cash will earn, with and without appreciation, and compare it with the interest cost.
5. Check the refinanced property's DSCR and break-even occupancy at the new payment.

For step three, the cleanest method is to save the property twice in the single family calculator: one deal with the old payment and the equity left in place, one with the new payment and the freed capital. Comparing the two side by side shows the cash flow you are giving up next to the capital you are getting, which is the whole decision on one screen.