How I Decide When Refinancing Is Actually Worth It

Three years ago one of my loans was sitting at 2.1 percent while new refinance offers were coming in at 1.3 percent, and it still took me four months to pull the trigger. A lower rate on paper doesn’t automatically mean refinancing is worth it. After doing this seven times across my 9 rental properties over more than 15 years of self-managing, I run the same set of numbers before I ever call a bank, and more often than not the answer is no.

Refinancing looks like free money until you count the application fees, the early repayment penalty on the old loan, and the months it takes just to break even. I’ve walked away from offers that saved 0.9 percentage points because the math didn’t work, and jumped on offers that only saved 0.6 points because everything else lined up. Here’s exactly how I decide.

The Napkin Math I Do First

Before anything else, I multiply the remaining loan balance by the rate difference. On a property with an 18,000,000 yen balance, dropping from 2.1 percent to 1.3 percent (a 0.8 point gap) saves roughly 144,000 yen a year in interest. If that number is under 80,000 yen a year, I don’t bother going further — the paperwork and bank visits alone aren’t worth my time for savings that small. I also pull up the amortization schedule from the original loan so I know exactly how much of the balance is still interest-heavy; a property in year 4 of a 30-year loan behaves very differently from one in year 22, even if the headline balance looks similar.

Switching from a variable rate to a fixed rate changes more than the monthly payment. On one refinance in 2019, I moved a 12,000,000 yen balance from a variable 1.6 percent to a fixed 1.9 percent on purpose, even though it cost me 36,000 yen a year, because I wanted predictable payments while I was juggling renovations on two other buildings at once. I don’t treat rate alone as the deciding factor — I also ask myself how much I value knowing the exact payment for the next 10 years versus chasing the lowest number on paper.

The Break-Even Point I Never Skip

Refinancing isn’t free. Between the new loan’s origination fee, a property appraisal, and registration costs, I typically pay 350,000 to 500,000 yen to switch lenders. I divide that total by my annual interest savings to get a break-even period in years. If the break-even is longer than 3 years, I pass — too much can change with tenants, interest rates, or my own plans for the building in that window. My rule of thumb: I want to recover the fees within 24 to 30 months.

Fees That Quietly Eat the Savings

The rate sheet a bank hands you never shows the full cost. On my last refinance, the breakdown looked like this:

• Loan origination fee: 2.2 percent of the new loan amount, plus tax
• Early repayment penalty on the old loan: around 1 percent of the remaining balance
• Appraisal and registration costs: roughly 100,000 to 150,000 yen
• Stamp duty on the new contract: 20,000 yen for loans in the standard bracket

Add those up and a refinance that looked like it would save 200,000 yen a year can easily cost 450,000 yen just to set up. That’s why I never compare rates alone — I compare rates minus fees minus my own time.

When the Remaining Term Works Against You

Interest savings shrink fast once you’re past the midpoint of a loan, because most of your monthly payment is already going to principal, not interest. On a 30-year loan, I’ve found that refinancing rarely makes sense once fewer than 10 years remain — there just isn’t enough interest left to save on to justify the fees. I’ve turned down two otherwise attractive offers for exactly this reason on properties I bought back in 2011 and 2013.

A Quick Checklist Before I Call the Bank

Over the years I’ve boiled this down to a short list I run through every single time, usually while sitting at my kitchen table with the loan statement and a calculator:

• Rate difference is at least 0.5 percentage points
• Remaining balance is above 10,000,000 yen (below that, fees eat too much of the gain)
• At least 15 years remain on the loan term
• Break-even period comes in under 3 years
• I have no plan to sell the property before the break-even point
• Cash flow stays positive after accounting for the refinance fees

If a deal fails even one of these, I usually let it go. I’d rather keep a slightly higher rate than deal with new loan paperwork for a marginal gain.

The Refinance That Actually Paid Off

The clearest example from my own portfolio: a property I bought in 2014 with a 22,000,000 yen loan at 2.3 percent. In 2021 I refinanced it down to 1.1 percent — a 1.2 point drop that saved about 264,000 yen a year. Total fees came to 480,000 yen, so my break-even landed at 1.8 years. I ended up holding that property for another 8 years after the switch, which worked out to roughly 1,650,000 yen in net savings over that stretch. That’s the kind of gap that makes the whole exercise worth it — and it’s rare enough that I only see it once every 2 or 3 years across all 9 buildings.

That’s the exact math I run every time a bank calls with a lower rate, and it’s the same approach I use across all 9 of my properties.

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