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There’s no limit to how many times you can refinance your home. Aside from the typical waiting period, most borrowers may refinance as many times as they want. However, at some point, added transaction fees will eliminate any benefit to doing so.
Whether it’s after a decade or within a single year of getting your new loan, there’s no set rule on refinancing. However, there is a waiting — or seasoning — period with cash-out refinances and certain government-backed loan programs. If you have asked yourself, “How often should I refinance my mortgage?” you should assess your situation and crunch the numbers to decide whether refinancing again is best for you.
- When's the best time to consider another refinance?
- Is it bad to refinance your home multiple times?
- How long do you need to wait before you can refinance again?
- How often should I refinance my mortgage?
When's the best time to consider another refinance?
The reasons for refinancing your home generally fall into two categories: getting a better deal or freeing up funds. For example, homeowners may want to refinance when mortgage interest rates drop significantly, when their credit scores soar or when they need cash to pay a monthly bill or big expense.
If you’re wondering if you should refinance your property a second — or third or fourth — time, consider whether it will accomplish any of the following goals:
Save money with a lower rate
Mortgage rates change frequently, and shaving even a fraction of a percentage off your rate could save you thousands of dollars over the life of the loan.
Eliminate burdensome loan terms
If your last refinance left you with loan terms you now regret, a refinance may be the easiest way to break free of private mortgage insurance (PMI) or an adjustable rate and start fresh. PMI can be 0.5%-5% of your total mortgage amount per year, so a refinance to stop paying PMI may be worth the cost.
Cash out equity for a big expense
If you have a significant amount of equity in your home, that could allow you to get a lump sum of cash for a kitchen or bath remodel, a wedding or another big life expense. A cash-out refinance allows you to take out a mortgage for more than you owe and get the difference in cash.
Change your repayment schedule
You might want to switch from a 30-year mortgage to a 15-year mortgage — or the reverse. Maybe you got a 30-year mortgage and now realize a 15-year mortgage would save you more over the life of the loan. Or maybe you got a 15-year mortgage and found the higher monthly payment puts a strain on your household budget. Either way, a desire to change your repayment schedule can be a good reason to refinance.
Is it bad to refinance your home multiple times?
Many homeowners never refinance or refinance only once during the life of a mortgage. That’s understandable because refinancing is time-consuming and requires closing costs that need to be paid upfront. But that doesn’t mean it’s bad to refinance your home two or even three times if the conditions warrant it.
The decision of whether and how often to refinance your home should be based on your own individual situation, looking at your future plans and doing the math to see if another refinance will ultimately save you money.
For example, refinancing again can pay off over time if you’re in the early stages of a 30-year mortgage and intend to stay in the home for good. Even fractions of a percentage point on your interest rate can add up to thousands of dollars in savings over the span of several decades. When deciding whether to refinance, it’s a good idea to calculate your savings using a mortgage calculator to see whether it makes sense to refinance your home loan.
Keep in mind that mortgage interest is front-loaded, which means that most of your monthly payments will go towards covering interest rather than paying back principal in any meaningful way. If you plan to move in the next few years, it may be a bad move to refinance your home again now. It also may not benefit you to refinance again if your credit score has dropped since your last refinance.
How long do you need to wait before you can refinance again?
There may be a limit on how quickly you can refinance again due to the seasoning periods that some mortgage lenders require between loans. Loans backed by the Federal Housing Administration (FHA), Freddie Mac, Fannie Mae and the U.S. Department of Veterans Affairs (VA) may require seasoning periods of six months or more. The requirement is more common for cash-out refinances.
|Mortgage backer||Loan type||Loan seasoning rules|
|Freddie Mac||Cash-out refinances||At least 1 borrower must be on the title of the home for at least 6 months before the refinance note date|
|Fannie Mae||Cash-out refinances||The property must have been acquired by the borrower at least 6 months before the refinance, with some exceptions (e.g., inheritance)|
|FHA||Mortgages being refinanced to FHA streamline refinance loans||The borrower is required to have made at least 6 payments on the mortgage being refinanced|
How often should I refinance my mortgage?
The answer requires a hard look at the costs of another mortgage refinance compared with the savings.
The average cost of a mortgage refinance in the U.S. is $4,345. Here are three things that should figure into your decision on how often to refinance your home.
Overcoming mortgage refinance closing costs
The closing costs of a mortgage refinance add up just as quickly as those you pay when buying a new home. These costs add up and erode the benefit of continued refinances over time. Borrowers should take their estimated savings into account and weigh them against the incremental transaction fees for completing the deal.
You can get a better idea of your closing costs by getting mortgage Loan Estimates from several lenders, preferably on the same day so you can more accurately compare costs. A mortgage Loan Estimate will lay out all costs in a simple format that makes it easy to compare loans. The estimates will also give you closing cost totals so you can easily compare lenders.
You should know that no-closing-cost mortgages are not actually free of closing costs. They have fees baked into the interest rate or added to your loan balance so you don’t have to pay them upfront. A no-closing-cost refinance may not be cheaper and may even be a bad deal. Make sure you check over your estimates with a mortgage calculator before agreeing to refinance.
Once you’ve tallied the cost, you also should look at the breakeven point, or how long it will take for the savings to offset the costs of the refinance.
Added interest expense if you extend your loan period
Refinancing to a longer loan term can lower your monthly payment at a cost. Mortgages with longer loan terms tend to come with greater interest expense, which makes sense as the interest on a 30-year loan has more time to accrue than a 15-year mortgage, all else held equal. This will cost you significantly more over the life of the loan.
Let’s say you buy a $250,000 home and put 20% down. A 30-year mortgage with a 4.375% APR could cost you $159,485.39 in interest, while a 15-year mortgage at the same APR could cost you under $64,038.23 in interest over the life of a loan. That means you save more than $95,000 over the life of the loan by going with the shorter term (though you’ll pay almost $470 more monthly).
As that example shows, extending the length of your loan can actually backfire if the term is longer than your original loan. When deciding whether refinancing for a second or third time will be beneficial to you, look at the total cost over the life of the loan rather than the difference in monthly payments alone.
Going underwater on your mortgage if you cash out too much
A cash-out refinance can be a relatively affordable way to get cash for a project, unexpected expense or life event. However, cash-out refinances lower the equity in your home, and taking multiple cash-out refinances may even put you in a bad financial position.
While your home value may change over time, the loan amount you borrowed will remain the same. In the worst-case scenario, if your home value drops, you could end up underwater on your loan. This means you’d owe more than the home is worth and will need to come up with extra cash to sell your home to cover the balance.
Before taking out repeated cash-out refinances, make sure you’ve weighed the pros, the cons and the impact on your finances.