How Often Can You Refinance Your Mortgage?
Many homeowners wonder, “How often can you refinance your mortgage?” If you’ve refinanced before, you may be one of them, especially in the current interest rate environment.
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 again 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 one. Then, you will pay down the loan balance on the new loan over time. Typically, the new loan will have better terms, such as a lower interest rate or a repayment term that better suits your needs. However, homeowners can also use something known as a cash-out refinance to help fund big expenses like renovations or education costs.
How often can you refinance your mortgage?
Since current interest rates are so low, if you’ve refinanced before, you may be wondering how often you can refinance. Like we said above, it is definitely possible to refinance your mortgage more than one time. However, there are some rules and regulations around how you 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.
The pros and cons of refinancing
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: Often, homeowners will refinance when interest rates are low in order to save themselves money on their monthly mortgage payment.
- You might have the ability 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 and they allow 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 between 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 end up spending a longer time paying off your loan then you would have originally.
- You’ll have to go through the loan application process all over again: Often, lenders will 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.
Should you 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.