If you have been holding rental properties for a few years, you have probably wondered whether refinancing makes sense or if it is just another distraction from your long-term strategy. The truth is that refinancing can be a powerful tool for buy-and-hold investors, but only when the timing and circumstances align with your portfolio goals.

TL;DR: Refinancing a rental property is not always the right move, but when interest rates drop, equity builds, or your financial situation improves, it can unlock cash flow, accelerate portfolio growth, and strengthen your overall investment position. This guide breaks down exactly when refinancing makes sense for buy-and-hold investors and how to approach the process strategically.

The Buy-and-Hold Mindset and Why Refinancing Gets Overlooked

As a buy-and-hold investor, your focus is on the long game. You are building wealth through appreciation, principal paydown, and consistent cash flow over time. The idea of refinancing might feel counterintuitive because it introduces new closing costs, resets your loan terms, and requires time and paperwork you would rather spend finding your next deal.

But here is the thing. Your financing strategy should evolve alongside your portfolio. The loan you secured three years ago might have been the best option available at the time, but market conditions change. Your credit profile improves. Your properties appreciate. And suddenly, the financing that once made sense is now costing you money every single month.

The key is knowing when to act and when to stay the course.

Five Scenarios Where Refinancing Actually Makes Sense

Not every rate drop or equity increase justifies a refinance. You need to weigh the costs against the benefits and make sure the move aligns with your broader investment strategy. Here are five scenarios where refinancing typically makes sense for buy-and-hold investors.

1. Interest Rates Have Dropped Significantly

This one seems obvious, but the math matters more than you might think. A 0.25% rate reduction on a $150,000 loan saves you roughly $240 per year. That is not nothing, but it probably does not justify $3,000 to $5,000 in closing costs.

However, if rates have dropped by 0.75% to 1% or more since you originated your loan, the savings start to compound quickly. On that same $150,000 loan, a full percentage point reduction could save you over $900 annually. Over a 10-year hold period, that is $9,000 in savings before accounting for the time value of money.

The rule of thumb I use with investors is this: if you can recoup your closing costs within 18 to 24 months through interest savings alone, the refinance is worth serious consideration.

2. You Have Built Substantial Equity

Buy-and-hold investors often underestimate how much equity they have accumulated. Between principal paydown and property appreciation, you might be sitting on $50,000 or more in equity without even realizing it.

A cash-out refinance allows you to access that equity without selling the property. You can use those funds to acquire additional rental properties, make value-add improvements to your existing portfolio, or simply strengthen your cash reserves for future opportunities.

This is where the BRRRR strategy intersects with traditional buy-and-hold investing. Even if you did not originally purchase the property with BRRRR in mind, you can still leverage the equity you have built to scale your portfolio faster.

At Michigan Mortgage Solutions, we work with investors every day who are looking to pull equity from stabilized rentals to fund their next acquisition. Our Rental Loan products are designed specifically for this purpose, offering competitive terms and a streamlined process that respects your time.

3. Your Credit Profile Has Improved

When you first started investing, you might have had a credit score in the mid-600s and limited experience as a landlord. Lenders viewed you as a higher risk, and your interest rate reflected that assessment.

Fast forward a few years. You have managed your properties successfully, paid down debt, and improved your credit score to 720 or higher. You are now a much more attractive borrower, and lenders will compete for your business with better rates and terms.

If your credit profile has improved significantly since you originated your current loan, refinancing can lock in those improvements and reduce your cost of capital going forward.

4. You Want to Shorten Your Loan Term

Most rental property loans come with 30-year terms, which keeps monthly payments manageable but means you are paying interest for a very long time. If your cash flow has improved and you can afford higher monthly payments, refinancing to a 20-year or even 15-year term can save you tens of thousands of dollars in interest over the life of the loan.

On a $150,000 loan on a 30 year term at 6%, switching to a 20-year term at 5.75% saves nearly $72,000 in total interest. That is real money that stays in your pocket instead of going to the bank.

This strategy works particularly well for investors who are approaching retirement and want to own their properties free and clear before they stop working.

5. You Need to Lower Your Debt-to-Income Ratio

Here is a scenario that does not get talked about enough. You have been acquiring properties steadily, but now your debt-to-income ratio is too high to qualify for additional financing. Your portfolio growth has stalled because lenders see you as overextended.

Refinancing one or more properties to lower your monthly payments can improve your DTI ratio and unlock your ability to qualify for new loans. You might also use cash from a refinance to pay off high-interest personal debt, which further improves your borrowing capacity.

This is a strategic move that prioritizes long-term portfolio growth over short-term savings.

What Lenders Look for When You Refinance a Rental Property

Understanding lender requirements helps you prepare properly and avoid surprises during the application process.

Credit Score: Most lenders require a minimum credit score of 620 to 640 for rental property refinances, but you will get significantly better terms with a score of 720 or higher.

Loan-to-Value Ratio: Expect lenders to cap your LTV at 75% for a refinance. If your property is worth $200,000, the maximum loan amount would be $150,000.

Debt-to-Income Ratio: Lenders typically want your DTI below 43% on a conventional loan. This includes all of your personal debt obligations plus the mortgage payments on your investment properties. However, DSCR loans are now much more competitive and they allow the investor to qualify as long as the rent will cover the mortgage payment. DSCR rates are often at or below the conventional loan rate.

Cash Reserves: Many lenders require you to show at least 3 months of mortgage payments in reserve. This protects them if your property experiences extended vacancy.

Property Documentation: Be prepared to provide current leases, rent rolls, income statements, and proof of insurance. Lenders want to see that your property is performing and that you are managing it professionally.

How to Prepare for a Rental Property Refinance

Preparation is everything when it comes to refinancing. The more organized you are, the smoother the process will be.

Start by pulling your credit reports and addressing any issues that might be dragging down your score. Pay down credit card balances, avoid opening new accounts, and make sure all payments are current.

Next, gather your property documentation. This includes your current lease agreement, rent payment history, recent income and expense statements, and records of any capital improvements you have made. If your tenant's lease is expiring soon, consider extending it before you apply. Lenders like to see stable, long-term tenancy.

Finally, get your personal financial documents in order. If you are going the Conventional Loan route, you will need two years of tax returns, W-2s or proof of self-employment income, and recent bank statements showing your cash reserves.

For DSCR loans, you will need proof of rent via lease(s) and the lender will order an appraisal to determine the properties value as well as the market rent to verify.

The Refinance Process: What to Expect

Once you are prepared, the refinance process follows a predictable path.

Step 1: Submit your application with all required documentation. First impressions matter, so make sure everything is complete and organized.

Step 2: Review loan offers and compare rates from multiple lenders. Do not assume the first offer is the best one.

Step 3: Lock your interest rate once you have found favorable terms. Rate locks typically last 30 to 60 days, so be prepared to move through the process efficiently.

Step 4: Underwriting begins. The lender will verify your information, order an appraisal, and review your property's financials. This can take several weeks.

Step 5: Close on your refinance, pay closing costs, and receive any cash-out funds within a few business days of recording.

Is Refinancing Right for Your Portfolio?

Refinancing is not a one-size-fits-all decision. It depends on your current loan terms, your financial goals, and where you are in your investment journey.

If you are trying to scale your portfolio and need capital to acquire new properties, a cash-out refinance might be exactly what you need. If you are focused on maximizing cash flow from your existing holdings, a rate-and-term refinance could free up hundreds of dollars per month.

The best way to know for sure is to run the numbers with someone who understands investor financing.

At Michigan Mortgage Solutions, we specialize in helping buy-and-hold investors evaluate their refinancing options and make decisions that align with their long-term goals. Whether you are looking at a Rental Loan for a stabilized property or exploring how to leverage equity for your next acquisition, we can help you navigate the process with confidence.

Ready to see if refinancing makes sense for your portfolio? Schedule a free investor consultation at michiganmortgagesolutions.com/investor-consultation or call us directly at (248) 963-1894. Let's talk through your situation and figure out the best path forward.