How Often Can You Refinance Your Home?
Many homeowners wonder, “How often can you refinance your mortgage?” If you’ve refinanced before, you may be one of them.
The good news is you can absolutely refinance your mortgage more than once. However, there are some considerations before you do it.
With that in mind, below is a guide to this process. Read it over so that you have a better understanding of whether or not refinancing more than once is right for you.
What does it mean to refinance?
Put simply, when you refinance a mortgage, you take out a new loan and use it to pay off your old mortgage. This can be a good way to get a lower interest rate, change the length of your loan, or get other benefits.
Homeowners can also use something known as a cash-out refinance to help fund big expenses like renovations or education costs.
Then, you will pay down the loan balance on the new loan over time.
But, every time you refinance your mortgage, you have to get a new loan, which can take time and cost money. You might have to pay fees to your old lender and your new lender, and you might have to pay for a new appraisal of your home.
So, while you can refinance your mortgage as often as you want, it’s usually a good idea to only do it if you think you will save money in the long run. You should also consider how long you plan to stay in your home, as refinancing too often can be a waste of money if you don’t plan to stay in your home for very long.
How often can you refinance your home?
As we said above, it is definitely possible to refinance your mortgage more than one time.
In fact, You can usually refinance your mortgage as often as you want, but there are some things to keep in mind, and there are some rules and regulations around how you do it.
It’s a good idea to consider the cost and how long you plan to stay in your home before deciding to do it.
Some mortgage programs, especially government-backed loan programs, have something known as a seasoning requirement. A seasoning requirement is essentially a waiting period that allows the lender to see that you will handle their loan responsibly.
On average, lenders ask that you wait six months to a year between refinances. However, in some cases, it may be longer.
If you want to know whether your loan is subject to a seasoning period, your best bet is to reach out to your loan servicer. They will be able to tell you if you are eligible to refinance at this time or if you should wait a while before applying for a new loan.
When should you refinance your mortgage?
There are several specific circumstances when it might make sense to refinance your mortgage:
- When interest rates are lower: If interest rates have dropped since you first took out your mortgage, refinancing might be a good option. Refinancing can lower your monthly payments and save money on interest over the long term.
- When you have improved credit: If your credit score has improved since you first took out your mortgage, you might be able to get a lower interest rate by refinancing. This can also save you money on your monthly payments and on interest over the long term.
- When you want to change the length of your loan: If you want to pay off your mortgage faster or extend the length of your loan, refinancing might be a good option. By refinancing, you can change the terms of your loan to better suit your financial goals.
- When you want to cash out some equity: If you have built up a lot of equity in your home, refinancing might be a good option if you want to use some of that equity to make improvements to your home, pay off debts, or make other large purchases.
Overall, it’s a good idea to refinance your mortgage if you think you will save money in the long run or if you want to change the terms of your loan to better suit your financial goals. It’s also a good idea to shop around and compare rates from multiple lenders before you decide to refinance.
How do I determine my refinance break-even point?
To determine your refinance break-even point, you need to consider the costs of refinancing and how long it will take you to recoup those costs through savings on your monthly mortgage payments.
Here’s a simple formula you can use to calculate your refinance break-even point:
Refinance break-even point = Total refinance costs / Monthly payment savings
For example, let’s say you have a mortgage with an interest rate of 5%, and you are considering refinancing to a mortgage with an interest rate of 4%. The total refinance costs for this loan would be $2,000, and you would save $100 monthly on your mortgage payments. Your refinance break-even point would be:
Refinance break-even point = $2,000 / $100 = 20 months
This means it would take you 20 months to recoup the costs of refinancing through the monthly payment savings. If you plan to stay in your home for less than 20 months, refinance might not make sense.
However, if you plan to stay in your home for longer than 20 months, refinancing could be a good option as you would start to save money on your monthly mortgage payments after 20 months.
Calculating your refinance break-even point can help determine whether refinancing makes sense for your financial situation. It’s important to consider the costs and potential savings of refinancing before making a decision.
What are the pros and cons of refinancing your home?
Now that you have a better idea if it’s possible for you to refinance, the next step is to figure out whether or not refinancing makes sense. Like any other financial decision, refinancing has advantages and disadvantages. We’ve laid them out below for your consideration:
Pros of refinancing
- You might save money: Homeowners often refinance when interest rates are low to save themselves money on their monthly mortgage payments.
- You might be able to pay off your loan faster: If your income has grown since you last refinanced, it may make sense to refinance into a shorter loan term. Usually, those shorter-term loans come with lower interest rates, allowing you to pay off your biggest asset faster.
- You might be able to access the cash you need: If you have a big expense looming on the horizon, you may be able to leverage the equity in your home and do a cash-out refinance to access the funds.
Cons of refinancing
- You’ll likely have to pay closing costs: Every time you refinance, you will be expected to pay closing costs on the new loan. According to the Consumer Finance Protection Bureau (CFPB), closing costs typically amount to 2 %- 5% of your new loan balance.
- You might restart the clock on your mortgage: If you take out a new loan with a longer loan term, you may spend a long time paying off your loan than you would have originally.
- You’ll have to go through the loan application process repeatedly: lenders often offer a streamlined version of the loan application process for refinances. However, you will still have to hand in financial paperwork and have it reviewed by an underwriter.
Bottom line on how often you can refinance your mortgage
At the end of the day, the decision to refinance your mortgage multiple times is a personal one.
That said, it’s not a good idea to refinance every time your credit score goes up a couple points or interest rates go down a little. As a rule of thumb, you should be in a substantially better financial position than when you first applied, and/or you should aim to save at least half a point in interest.
Still, if you have questions about whether or not refinancing is a good decision for you, you’ll want to talk to a lender who can review the particulars of your financial situation and give you sound advice.