My Rental DSCR Is Below 1.25 — Should I Still Refinance?
Maria bought a Charlotte duplex in mid-2022 at 7.00%. Her loan balance today: $268,000. A lender quoted her 6.50%. A half-point drop sounds meaningful — but her DSCR sits at 1.08, and conventional wisdom says 1.25 is the floor for a safe refi.
Is that conventional wisdom right here? And is "Wait" actually the correct call?
The Scenario
| Property value | $398,000 |
| Loan balance | $268,000 |
| Current rate | 7.00% (27 years remaining) |
| Quoted rate | 6.50% (30-year fixed) |
| Monthly rent | $2,700 (both units) |
| Taxes / Insurance | $285 / $155 /mo |
| Vacancy / Maint / PM | 5% / 5% / 0% |
| Closing costs | $7,200 |
| Investment horizon | 10 years |
What RefiSignal Returned
Why "Wait" Is the Right Call — For Now
The math isn't broken. $149/month in improved cash flow is real money. But $7,200 in closing costs at $149/month takes 4.0 years to recover.
That's the core constraint. If Maria plans to sell within 3 years, she'd never recoup the fees. At 5 years, she's roughly breaking even. The full 10-year advantage of $4,648 only materializes on a long hold.
DSCR at 1.17 is the second flag. The property services its debt — but the margin is thin. A vacancy month or an unexpected repair erases several months of accumulated savings. RefiSignal's "strong" DSCR threshold is 1.25. Below that, the engine flags the scenario as cautionary even when cash flow is positive.
What Would Flip This to "Refi Now"
Rate drops further. If Maria can negotiate 6.125%, the monthly improvement grows, DSCR clears 1.20, and break-even falls under 36 months on the same closing cost structure.
Closing costs drop. At $4,000–$4,500 on the same 6.50% quote, break-even falls to roughly 27–30 months — a range where a 5+ year hold makes the math comfortable.
Worth shopping at least two more lenders before walking away from this rate environment.
The Takeaway
"Wait" doesn't mean "never." It means the current quote at the current cost structure doesn't clear the bar on a realistic hold horizon. Maria should re-run this analysis every 90 days or whenever she gets a better quote.