How Often Can You Refinance Your Home?
Depending on your financial goals, refinancing your mortgage loan can give you a lower interest rate, a smaller monthly payment, or a longer – or shorter – term. But what if you’ve already refinanced your home in the past? Can you do it again?
The short answer? Yes.
How Many Times Can You Refinance Your Home?
In theory, there is no limit to the number of times you can refinance your home. However, you’ll still need to meet your lender’s specific requirements for refinancing, including having enough equity in your home. Most lenders require that you have at least 20% equity in your home to refinance your mortgage. If you don’t have this equity, you might not be able to refinance as often as you’d like.
The big question is whether multiple refinances make financial sense. You might want to refinance to lower your mortgage loan’s interest rate. There are only so many times you can do this, though, before you reach what is probably the lowest rate you’ll get. Refinancing after you’ve hit this rate may not make sense.
Maybe you want to refinance a shorter-term loan, such as a 15-year, fixed-rate mortgage, into one with a longer term, such as a 30-year, fixed-rate loan. Doing this will reduce your monthly payment because you’re spreading your repayment over more years. Again, though, once you refinance to that longer-term loan, you might not have any reason to refinance your home again.
The same holds true if you want to reduce the amount of interest you pay over the life of your loan, something you can do by refinancing from a longer-term mortgage to one with a shorter term, such as 15 or 10 years. Once you do this, though, you might not need to refinance again; there are only so many loan types, after all.\
There is another drawback with refinancing multiple times: Refinancing isn’t free. You need to make sure that any benefits you get from refinancing your home outweigh the cost.
How Much Does It Cost Each Time You Refinance?
Several factors will determine the cost of refinancing your mortgage. On average, you can expect to pay between 2% – 6% of your loan amount. Closing costs are the fees you pay to your lender and third-party providers – such as title insurers, appraisers and real estate attorneys – to originate your refinance.
Your closing costs will vary depending on the size of your mortgage and the state and county in which you live. You might be able to roll your closing costs into your new loan instead of paying them upfront. Say you’re refinancing to a loan of $250,000. If your closing costs are $5,000, you can add those to your loan amount instead of paying for them upfront. This means you’d pay back a mortgage of $255,000 instead of $250,000.
The cost of a refinance is one reason it might not be worth it to refinance too many times. If you can’t reduce your interest by much, you might not save enough to outweigh those closing costs.
Reasons Why You Might Refinance Multiple Times
Why would you want to refinance your mortgage loan more than once? There are several reasons.
For A Lower Interest Rate
Most homeowners refinance to get a lower interest rate with their mortgage. That’s because when you lower your mortgage loan’s interest rate, you’ll also drop your monthly payment, saving you potentially thousands of dollars a year. That can add up to real savings. Mortgage interest rates might rise or fall several times during the life of your mortgage. This means that you might refinance more than once to end up with the lowest possible interest rate.
For A Longer Or Shorter Loan Term
You might refinance a long-term mortgage loan such as a 30-year, fixed-rate mortgage to one with a shorter term, such as 15 years. When you do, you’ll reduce the amount of interest you pay over the life of your loan. This could save you tens of thousands of dollars depending upon how long it takes to pay off your mortgage. You might also go the opposite way, refinancing a shorter-term loan – such as a 15-year, fixed-rate mortgage – into one with a longer term, such as 30 years. This will lower the amount you pay each month because you’re stretching out your mortgage payments over a longer time. This could provide financial relief if you’re struggling to pay your bills each month. Remember, though, you will pay more total interest in the long term by doing this.
To Change Your Loan Type
You can also refinance into a different type of mortgage loan. Maybe you have an adjustable-rate mortgage that is about to enter its adjustable phase. During this phase, your interest rate will increase or decrease depending on market factors. That means your monthly payment could rise during this period.
To avoid the uncertainty that comes with rising or falling interest rates, some homeowners refinance out of their adjustable-rate mortgages to a fixed-rate mortgage in which the interest rate never changes. A fixed-rate loan makes it easier for these owners to budget for their monthly mortgage payments.
To Borrow Against Your Equity
In a cash-out refinance, you borrow against the equity in your home. You might owe $200,000 on your mortgage but refinance that loan for $250,000. You’d then receive that extra $50,000 as a lump sum that you can spend on anything. But instead of paying back $200,000, you now must pay back $250,000, with interest.
Things To Consider Before Refinancing Again
Refinancing isn’t free, and the closing costs that your lender charges can add up. Determine if refinancing will save you enough money each month or reduce enough of the interest you’ll have to pay to make these fees a worthwhile expense.
Building equity is a key benefit of owning a home. Equity is the difference between what you owe on your mortgage loan and what your home is worth. If you owe $100,000 on your mortgage and your home is worth $200,000, you have $100,000 worth of equity. You can then borrow against that equity in the form of home equity loans, using the money from these loans for whatever you want. Equity is also important when you sell: The more equity you have, the more likely you are to earn a solid profit upon sale.
Depending on how you refinance, you can erase some of the equity you’ve earned. This happens when you do a cash-out refinance.
Some loans come with prepayment penalties if you pay off your mortgage too soon. Refinancing your mortgage counts as paying it off. Under current laws, if you took out a mortgage after January of 2014, your lender is allowed to charge a prepayment penalty of up to 2% of your loan's remaining balance if you pay off your loan within 2 years. If you pay off your mortgage within the first 3 years, your lender can charge up to 1% of your loan’s outstanding balance as a prepayment penalty. Your lender can't charge anything if you pay off your loan after 3 years. If your lender charges prepayment penalties – many won’t – keep this fee in mind when determining whether a refinance is worth it.
Should You Refinance Your Home Multiple Times?
Refinancing your home more than once can make financial sense if you can lower your interest rate or change your loan’s term to provide financial relief. But before you take on multiple refinances, determine if the costs of refinancing – in fees and in lost equity – are worth the gains you’ll receive. If you are ready to refinance your mortgage, contact us to start the approval process today.