DSCR Loan Refinance Guide: When and How to Refinance Your Investment Property

Most investors don't realize they can refinance a DSCR loan just like any other mortgage—and sometimes they should. Whether rates dropped, your property appreciated, or you want to switch from an adjustable-rate to a fixed-rate loan, DSCR loan refinancing can save you thousands per year.

In 2026, with rates fluctuating between 7-9% for DSCR loans, timing your refinance correctly can mean the difference between breaking even and building serious wealth.

When to Refinance a DSCR Loan

1. Interest Rates Dropped 0.75%+

The classic refinance trigger: rates fell enough to justify closing costs.

Rule of thumb: If you can lower your rate by 0.75% or more, refinancing usually makes sense.

Example:

• Current loan: $300,000 at 8.5%
• Current monthly payment: $2,307 (P&I)
• New loan: $300,000 at 7.5%
• New monthly payment: $2,098 (P&I)
• Monthly savings: $209
• Closing costs: $6,500
• Break-even: 31 months (6,500 ÷ 209)

If you plan to hold the property for 3+ years, refinance. If you're selling in 2 years, skip it.

2. Your ARM Is About to Adjust

Many DSCR loans are offered as 5/1, 7/1, or 10/1 ARMs (adjustable-rate mortgages). The rate is fixed for 5, 7, or 10 years, then adjusts annually based on an index.

If your ARM is approaching adjustment and rates are higher than when you locked in, refinance to a fixed-rate loan before the adjustment hits.

Example:

• Original loan (2023): $280,000 at 6.5% (5/1 ARM)
• Adjustment date: March 2028
• New index rate: 8.75% (potential adjusted rate)
• Strategy: Refinance in 2026 to 30-year fixed at 7.75%

Locking in 7.75% now beats risking 8.75%+ in 2028.

3. Property Appreciated Significantly

If your property appreciated 15-20%+, you may have enough equity to:

• Eliminate PMI (if you had less than 20-25% down originally)
• Lower your rate by moving to a lower LTV bracket
• Access better loan terms

Example:

• Original purchase (2023): $320,000 with 20% down ($64,000)
• Original loan: $256,000
• Current value (2026): $385,000 (20% appreciation)
• Current LTV: 66% (256,000 ÷ 385,000)
• Refinance at 75% LTV: $288,750
• No PMI, better rate tier

4. You Want to Switch Lenders for Better Service

Some lenders have poor communication, slow processing, or unhelpful customer service. If you're planning to scale your portfolio, working with a responsive lender matters.

Refinancing lets you switch to a better lender while potentially improving your rate or terms.

5. You Need to Remove a Co-Borrower

Divorce, partnership dissolution, or estate planning may require removing a co-borrower from the loan. Refinancing into your name alone (or an LLC's name) accomplishes this.

Most lenders require the remaining borrower to qualify for the full loan amount independently.

DSCR Refinance Requirements

Minimum Seasoning Period

Most DSCR lenders require you to own the property for at least 6-12 months before refinancing. This is called "seasoning."

• 6 months: Some lenders allow "early" refinances
• 12 months: Standard seasoning requirement
• No seasoning: Rare, usually requires rate/term refi only (no cash out)

If you bought a property 4 months ago and rates dropped, you'll likely have to wait until month 6-12 to refinance.

DSCR Ratio Requirements

Same as purchase: minimum 1.0 DSCR, ideally 1.2+.

The refinance lender will use:

• Current market rent (from appraisal or lease)
• New loan payment (not your existing payment)

Example:

• Monthly rent: $2,400
• Existing loan payment: $2,100 (DSCR 1.14)
• Proposed refinance payment: $2,250 (DSCR 1.07)
• Result: Still qualifies (above 1.0 minimum)

Credit Score

Minimum: 640-660 Better rates: 700+ Best rates: 740+

If your credit score dropped since you got the original loan, you may not qualify for better rates—or may not qualify at all.

Equity/LTV Requirements

Most DSCR refinances require:

• Maximum 80% LTV (20% equity)
• Some lenders allow 85% LTV for rate/term refinances
• Cash-out refinances typically cap at 75% LTV

Example:

• Current value: $400,000
• Maximum refinance amount (80% LTV): $320,000
• Existing loan balance: $310,000
• Available equity: $10,000 (minus closing costs)

Appraisal

Every refinance requires a new appraisal ($400-700). The lender wants to verify current property value.

If the property didn't appreciate—or worse, declined in value—your refinance options narrow.

Reserves

Expect to show 6-12 months of PITI in reserves after closing, just like a purchase.

Types of DSCR Refinances

Rate-and-Term Refinance

You're changing the interest rate or loan term (30-year to 15-year, ARM to fixed, etc.) without taking cash out.

Benefits:

• Lower closing costs
• Better rates
• Less stringent underwriting

Best for:

• Lowering monthly payment
• Switching from ARM to fixed
• Shortening loan term to build equity faster

Cash-Out Refinance

You're refinancing for more than you owe and pocketing the difference.

Example:

• Current value: $380,000
• Existing loan: $270,000
• New loan (75% LTV): $285,000
• Cash out: $15,000 (minus $6,000 closing costs = $9,000 net)

Uses for cash-out funds:

• Down payment on another property
• Renovations to increase rent
• Pay off high-interest debt
• Build reserves

Downside: Higher rates (0.25-0.75% more than rate-and-term refi), higher payment.

See detailed cash-out refinance guide in separate article.

Streamline Refinance

Some lenders offer "streamline" refinances for existing customers:

• Reduced documentation
• No appraisal (sometimes)
• Lower fees
• Faster closing (15-20 days)

Requirements:

• You must refinance with the same lender
• No cash out
• 12+ months of on-time payments

Not all DSCR lenders offer streamline refinances. Ask your current lender.

DSCR Refinance Process

Step 1: Determine Your Goal

Why are you refinancing?

• Lower payment
• Lower rate
• Switch to fixed-rate
• Pull cash out
• Remove co-borrower

Your goal dictates which refinance type and lender to choose.

Step 2: Check Your Numbers

Before applying, verify:

• Current loan balance: Check your latest statement
• Current property value: Estimate using Zillow, Redfin, or recent sales comps
• Current DSCR: Monthly rent ÷ proposed new payment
• Break-even point: Closing costs ÷ monthly savings

If the numbers don't work, wait.

Step 3: Shop Lenders

Get quotes from 3-5 DSCR refinance lenders. Compare:

• Interest rate
• APR (includes fees)
• Closing costs
• Loan terms (30-year fixed, 7/1 ARM, etc.)
• Seasoning requirements
• Streamline options (if refinancing with current lender)

Rates vary by 0.5-1.5% between lenders. Shopping saves thousands.

Step 4: Lock Your Rate

Once you choose a lender, lock your rate. Rate locks typically last 30-60 days.

If rates drop during your lock period, some lenders offer a "float down" option (sometimes for a fee).

Step 5: Submit Documentation

Documents needed:

• Current mortgage statement
• Lease agreement or rent roll
• Homeowners insurance
• Property tax bill
• Bank statements (2 months)
• Credit authorization

Not needed (for DSCR refinance):

• Tax returns
• W-2s or pay stubs
• Employment verification

Step 6: Appraisal

Lender orders appraisal (7-14 days to complete). The appraised value determines your LTV and loan amount.

If the appraisal comes in low, you can:

• Pay the difference to reach desired LTV
• Accept a smaller loan amount
• Challenge the appraisal with comps
• Cancel the refinance

Step 7: Underwriting and Closing

Underwriting takes 1-3 weeks. If approved, you'll receive closing documents 3 days before closing (federal requirement).

Total timeline: 30-45 days from application to closing.

Refinance Costs and Fees

Typical Closing Costs

• Appraisal: $400-700
• Origination fee: 0-2% of loan amount
• Title insurance: $800-2,000
• Escrow/attorney fees: $500-1,500
• Recording fees: $100-300
• Credit report: $30-100
• Flood certification: $10-25

Total: $3,000-8,000 depending on loan size and lender

No-Closing-Cost Refinance

Some lenders offer "no closing cost" refinances where they cover fees in exchange for a higher interest rate (typically 0.25-0.5% higher).

Example:

• Option A: 7.5% with $6,000 closing costs
• Option B: 7.875% with $0 closing costs

Option B saves upfront cash but costs more over time. If you plan to hold the property for 5+ years, Option A is usually better.

Rolling Costs into the Loan

If you have equity, you can roll closing costs into the new loan amount:

Example:

• Current value: $360,000
• Existing loan: $250,000
• Closing costs: $6,500
• New loan: $256,500 (includes closing costs)
• LTV: 71% (well under 80%)

This avoids out-of-pocket costs but increases your monthly payment slightly.

Break-Even Analysis

Before refinancing, calculate your break-even point:

Formula: Total closing costs ÷ Monthly savings = Break-even (months)

Example 1: Good refinance

• Closing costs: $5,500
• Monthly savings: $210
• Break-even: 26 months

If you're holding the property for 3+ years, refinance.

Example 2: Bad refinance

• Closing costs: $7,200
• Monthly savings: $85
• Break-even: 85 months (7 years!)

Unless you're certain you'll hold for 7+ years, skip the refinance.

Tax Implications of Refinancing

Mortgage Interest Deduction

Refinancing doesn't change your ability to deduct mortgage interest. Whether you pay 8.5% or 7.5%, the interest is deductible on Schedule E.

Cash-Out Refinance and Taxes

Cash you receive from a cash-out refinance is not taxable income. It's a loan, not earnings.

However, the interest on the cash-out portion may have different deductibility rules. Consult a CPA.

Closing Costs Are Deductible

Most refinance closing costs can be deducted:

• Appraisal fee
• Origination fees
• Title insurance
• Legal fees

Some costs must be amortized over the life of the loan, others can be deducted in Year 1. Your CPA will handle this when filing.

Common Refinance Mistakes

Mistake #1: Refinancing Too Often

Every refinance costs $3,000-8,000. If you refinance every 18 months chasing a 0.25% rate drop, you're losing money on closing costs.

Rule: Only refinance if you'll save at least $150-200/month and break even within 3 years.

Mistake #2: Extending the Loan Term

If you've paid on your mortgage for 5 years (25 years remaining) and refinance into a new 30-year loan, you're resetting the clock.

Example:

• Original loan (2021): $300,000 at 7%, 30 years
• 2026: 25 years remaining, balance $275,000
• Refinance (2026): $275,000 at 6.5%, 30 years
• Result: You'll pay an extra 5 years of interest

Solution: Refinance into a 25-year or 20-year term to avoid extending your payoff date.

Mistake #3: Ignoring ARM Adjustment Caps

If you're refinancing from one ARM to another, check the adjustment caps:

• Initial cap: How much the rate can increase at first adjustment (usually 2-5%)
• Periodic cap: How much it can increase each subsequent year (usually 1-2%)
• Lifetime cap: Maximum rate over life of loan (usually 5-6% above start rate)

A 5/1 ARM at 6.5% with a 5% lifetime cap maxes out at 11.5%. If you can't afford that, refinance to fixed.

Mistake #4: Not Shopping Lenders

Refinance rates vary widely. The first lender you call may quote 8.25% while another offers 7.5% for the same scenario.

Minimum: Get 3 quotes Ideal: Get 5 quotes

Use the lowest quote to negotiate with your preferred lender.

Mistake #5: Cashing Out Too Much Equity

Taking a $50,000 cash-out refinance to buy a boat or take a vacation is a terrible idea. You're:

• Increasing your loan balance
• Increasing your monthly payment
• Reducing your equity cushion
• Potentially hurting your DSCR on future purchases

Only cash out equity for:

• Down payment on another rental property
• Property improvements that increase rent
• Paying off high-interest debt (10%+ credit cards)

When NOT to Refinance

1. You're Selling Within 2 Years

If you plan to sell the property soon, you won't recoup closing costs.

2. Your Break-Even Is 5+ Years

Long break-even periods are risky. Market conditions, interest rates, and your financial situation can change.

3. Your Credit Score Dropped

If your score fell from 740 to 660 since your original loan, refinance rates may be worse than your current rate.

4. The Property Didn't Appreciate

If your property is worth the same or less than when you bought it, you may not have enough equity to refinance.

5. Rates Are Higher Than Your Current Rate

Unless you're switching from ARM to fixed for stability, refinancing into a higher rate makes no sense.

DSCR Refinance vs. Traditional Investment Property Refinance

DSCR Refinance

• No tax returns or income verification
• Minimum 1.0 DSCR
• Rates: 7.5-9%
• Best for: Self-employed, portfolio investors, foreign nationals

Traditional Refinance

• Requires tax returns, W-2s, income verification
• DTI limits (usually 45-50%)
• Rates: 6.5-8%
• Best for: W-2 employees with clean financials

If you qualify for both, traditional refinances usually offer better rates. But if you're self-employed with low AGI or own 4+ properties, DSCR is easier.

Real-World Refinance Example

Property:

• Purchase price (2023): $295,000
• Original loan: $236,000 at 8.75% (30-year fixed)
• Original payment: $1,846 (P&I)
• Current value (2026): $340,000
• Current balance: $230,000

Refinance scenario:

• New loan: $230,000 at 7.5% (30-year fixed)
• New payment: $1,608 (P&I)
• Monthly savings: $238
• Closing costs: $5,800
• Break-even: 24 months

Decision: Refinance. The investor plans to hold the property for 10+ years, and breaking even in 2 years makes it a clear win.

Annual savings: $238 × 12 = $2,856/year

Over 10 years, that's $28,560 saved—minus $5,800 closing costs = $22,760 net benefit.

The Bottom Line

Refinancing a DSCR loan is straightforward and follows the same process as the original loan: no tax returns, no income verification, just property rental income and credit.

Refinance when:

• Rates drop 0.75%+
• Your ARM is adjusting soon
• Property appreciated significantly
• You want to pull equity for another investment

Avoid refinancing if:

• Break-even exceeds 3-4 years
• You're selling within 2 years
• Closing costs outweigh savings

Run the numbers, shop multiple lenders, and refinance when it makes financial sense. A well-timed refinance can save you thousands per year and accelerate your path to financial independence.