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Cash-out refinance on a rental property: how the numbers really work

By Spruce Sheets · Updated November 14, 2026 · 6 min read

A rental you've owned for a while may hold a lot of equity. A cash-out refinance replaces your mortgage with a bigger one and hands you the difference in cash, often to fund a down payment on the next property, a renovation, or to pay off more expensive debt. The question isn't only how much cash you can get, but what that cash really costs and what it does to the property's cash flow.

How much cash can you take out?

Cash out = (property value × maximum LTV) − current loan balance − closing costs

Maximum LTV is set by the lender and the loan program. Fannie Mae's eligibility matrix currently allows a cash-out refinance on an investment property up to 75% LTV for one unit and 70% for two to four units. Portfolio lenders and DSCR lenders set their own limits, often in a similar range. The appraisal sets the value, and it may come in lower than you hope.

There are also timing rules. For Fannie Mae cash-out refinances, at least one borrower generally must have been on title for six months, and an existing first mortgage that you pay off must be at least 12 months old (note date to note date). Ask your lender which rules apply to you.

A worked example

A landlord owns a single-family rental worth about $320,000. The current loan was taken out years ago at a low rate. All numbers are made up.

	Current loan	Cash-out refinance
Loan amount	$150,000 balance	$240,000 (75% of $320,000)
Interest rate	4.0%	7.25%
Term	22 years left	30 years
Monthly payment (P&I)	$855.27	$1,637.22
Closing costs	–	$6,400

Net cash to the owner = $240,000 − $150,000 − $6,400 = $83,600.

The payment rises by $781.95 a month, or about $9,383 a year.

What the cash really costs

It's tempting to think of the new money as "borrowed at 7.25%". It isn't. The refinance also moves the existing $150,000 from 4.0% to 7.25%. Look at the first year's interest:

• Interest in year one on the old loan: about $5,921
• Interest in year one on the new loan: about $17,324
• Extra interest: about $11,403

$11,403 of extra interest for $83,600 of cash is roughly 13.6% in the first year, before closing costs. That's the effective cost of the cash when you give up a low rate. It's still a valid choice if the money earns more than that elsewhere, but it's a very different number from the rate on the loan estimate.

When your current rate is higher than today's rates, the opposite happens: the refinance lowers the cost of the existing balance, and a cash-out can look much cheaper. Either way, compare against the loan you have now.

What it does to cash flow and DSCR

The property rents for $2,400 a month. With a 5% vacancy allowance, property tax ($3,600 a year), insurance ($1,400 a year), and 5% of rent each for repairs and capital expenses (self-managed), net operating income (NOI) is $1,623.33 a month.

	Before	After cash-out
NOI per month	$1,623.33	$1,623.33
Loan payment	$855.27	$1,637.22
Monthly cash flow	$768.06	−$13.89
DSCR (NOI ÷ payment)	1.90	0.99
Equity left in the property	$170,000	$80,000

The property goes from comfortable to slightly negative. A DSCR below 1.0 means the rent no longer covers the loan; many DSCR lenders would not approve that loan on the property's income alone, and if anything goes wrong, you're paying the mortgage from your own pocket.

At a 70% LTV (the limit for two to four units under Fannie Mae), the new loan would be $224,000 and the cash after costs $67,600: less money, but a smaller payment.

When a cash-out refinance can make sense

• The cash has a clear, better use: for example a down payment on a property you've analysed carefully, or paying off debt that costs more than the effective cost above.
• Rates are lower than your current rate, so the refinance improves the existing balance instead of re-pricing it upward.
• The property still cash-flows with a DSCR you're comfortable with after the new payment.
• You keep reserves. Pulling out every dollar of equity leaves no cushion for vacancies or repairs.

Alternatives to compare

• A rate-and-term refinance (no cash out) if your goal is a lower payment. See refinance break-even on a rental.
• A second loan on the property, such as a home equity loan or line of credit for investment property, where available. It leaves the low-rate first mortgage in place; the rate on the second loan is often higher, so compare the blended cost.
• Borrowing against another property with more equity or a higher current rate.
• Selling a property that no longer fits your plans.

Tax notes (general information)

On a rental, mortgage interest is generally deductible against rental income. With cash-out money, though, the IRS looks at what the money is used for (the interest "tracing" rules), so interest on the extra cash may be treated differently if you spend it on something personal. Points and some closing costs on a rental loan are generally deducted over the life of the loan. Talk to a tax professional before you refinance; this guide is not tax advice.

A note on DSCR loans

Many investors use DSCR loans for cash-out refinances on rentals. These lenders qualify the loan mainly on the property's income rather than your personal income: roughly, rent divided by the new payment (often including taxes, insurance and HOA dues). Each lender sets its own minimum ratio, maximum LTV, seasoning rules and prepayment penalties, and rates are often higher than for conventional loans. A cash-out that pushes the ratio below a lender's minimum may not be approved, or only at a lower loan amount. Run the ratio yourself before applying.

Track the cash after closing

Once the refinance closes, record the new loan in your books: the payoff of the old loan, closing costs, the new balance and the cash you received. If you use the cash for another property, keep a record of exactly where it went. That matters for the interest tracing rules mentioned above, and it lets you check, a year later, whether the cash earned more than it cost.

Checklist before you apply

1. Current balance, rate and months left from your mortgage statement.
2. A realistic value from recent comparable sales.
3. Your lender's maximum LTV, seasoning rules, DSCR minimum and rate for a cash-out on an investment property.
4. Closing costs from a loan estimate, plus any prepayment penalty on the current loan.
5. Net cash after payoff and costs.
6. The first-year extra interest divided by the net cash: the effective cost of the money.
7. New monthly cash flow and DSCR, at a slightly lower rent than today.
8. A written plan for the cash, with its expected return.

General information with a made-up example. Not financial, mortgage, tax or legal advice, and not a recommendation to refinance. Lender programs and limits change; confirm with your lender.

Frequently asked questions

How much can I cash out on an investment property?

It depends on the lender and property. Under Fannie Mae's current eligibility matrix, a cash-out refinance on an investment property can go up to 75% loan-to-value for one unit and 70% for two to four units. Your cash is the new loan minus the old balance and closing costs.

What is the real cost of a cash-out refinance?

Besides closing costs, the whole balance is usually re-priced at the new rate. If your current loan has a low rate, the extra interest on the old balance is part of the cost of the cash you take out.

How long do I need to own a rental before a cash-out refinance?

For Fannie Mae loans, at least one borrower generally must have been on title for six months, and an existing first mortgage that is paid off must be at least 12 months old. Other lenders set their own rules.

Keep reading

• Refinance break-even on a rental property: how long until it pays off?
• BRRRR calculator: how to run the numbers on a BRRRR deal
• Cash-on-cash return on a rental: formula, example and what it leaves out