How to think strategically about refinancing options
Refinancing could potentially save you money, make your monthly home loan payments more manageable, and even give you more control over your house’s equity. It can be a pretty sweet deal — but can you do it more than once? And more importantly, should you? If you’re wondering, “how often can you refinance your home?”, the answer is — like buying a car or new piece of equipment — as often as you want. But the caveat is the time and money you’ll have to put in up front.
Quick look: What is a mortgage refinance and how does refinancing work?
Typically, when you refinance your mortgage, you basically replace your existing mortgage with a new loan that offers updated terms. Then you use your new loan to pay off the original. Once approved and closed, you’ll be set with a new interest rate, loan terms, and/or monthly mortgage payment.
This can help you upgrade your mortgage with a lower interest rate or a different repayment period. You can also refinance to add to the equity of your home or pull out cash from your existing equity.
Refinancing is similar to taking out your original mortgage. One of the most important aspects of the process is having a solid understanding of why you’re doing so. Is it to pay off your loan faster, lower your monthly payments, or shift from an adjustable-rate mortgage (ARM) to a fixed-rate one? Knowing your “why” behind the process can help guide your decision making as you look for a lender.
Can you refinance your home multiple times?
There’s no legal limit to the amount of times you can refinance your mortgage. But that doesn’t mean refinancing repeatedly within a short period of time is always the best idea or allowed by all lenders. If you’ve refinanced before and are thinking about doing so again, take these factors into consideration to avoid these home refinancing mistakes.
Depending on the type of home loan you have and the kind of refinance you do, you may be faced with a waiting period.
If you’re seeking a rate-and-term refinance (meaning you’re either changing your interest rate, loan length, or both) for a conventional loan, there is no waiting period. If you have a government-backed loan (like an FHA loan or VA loan), however, you’ll be required to hold on to your existing mortgage for at least six months before you can refinance.
Some lenders, regardless of the loan type, may require what’s called a “seasoning” period — which means you can’t refinance again for at least six months with that lender. But they can’t stop you from refinancing with a different lender in the meantime.
Cash-out refinances almost always require a waiting period of at least six months between refinances. Plus, you have to build up enough equity in your home to execute a cash-out refinance, which may take longer.
Refinancing isn’t free, and you’ll likely pay a decent amount in fees when doing so. From appraisal fees to origination fees and more, closing costs of refinancing are similar to those when you close on a home sale — about 2% to 5% of your home price. It’s important to weigh the costs against the potential savings to determine if refinancing is worth it.
While not super common, some lenders may penalize you for refinancing before your loan terms are up. Prepayment penalties can be expensive and may cancel out any cost savings you achieve through refinancing. Be sure to carefully read your loan terms and check for fees before carrying out a refinance.
If you’re seeking a cash-out refinance, you’ll need to have a certain amount of equity in your home to be able to pull out cash. Typically, lenders don’t allow you to borrow 100% of your equity. Most limit the amount you can withdraw to ensure your loan-to-value (LTV) ratio is no more than 80%, meaning your mortgage balance divided by the appraised value is 0.8 or below, even after your cash-out refinance.
Refinance as often as you want — but be strategic
As interest rates fall, refinancing can be tempting. If it makes sense for you and your financial situation (and your lender allows it), there’s no harm in refinancing more than once — or even many times — over the course of homeownership. Just remember the cost saving benefits of refinancing can take time to come to fruition, so be sure that you’ll break even and save before your mortgage is fully paid.