How Often Can You Refinance Your Mortgage?
Refinancing your mortgage while interest rates are low can lower your monthly payment and save you money over the life of your loan. With interest rates currently so low, many people are wondering if they should refinance their mortgage. But what if you’ve already refinanced? You may be confused about how many times or how often you can refinance your mortgage.
Refinancing essentially replaces your existing mortgage with a new one, giving you the opportunity to get new terms. There are many reasons someone might refinance their mortgage, from taking advantage of low interest rates to simply needing cash via a cash-out refinance. In most cases, you can refinance as many times as you would like. However, there are costs associated with refinancing that may outweigh the benefits.
How Often Can You Refinance Your Mortgage?
While you can probably refinance more frequently than you’d think, there are some stipulations about exactly when you are eligible to refinance.
Lenders enforce “waiting periods,” which dictate how often you can refinance and vary based on the type of loan. Conventional loans do not have a waiting period, while government-backed loans have a waiting period of six months. FHA and VA streamline refinance programs, for example, are government-backed loans that require you to wait 6-7 months before refinancing. Some lenders enforce a wait period of six months regardless of the type of loan you have, which is called a “seasoning” requirement. In this case, you’re free to shop around and explore different lenders if you don’t want to wait to refinance.
There are different rules for cash-out refinances. A cash-out refinance replaces your current mortgage with a new home loan that is greater than the amount you owe on your home. The borrower gets the difference in cash, and many people use these funds for home renovations. Most lenders enforce a 6-month wait period on refinancing a cash-out mortgage. VA-backed mortgages require a minimum of six consecutive payments before a cash-out refinance is allowed, and the refinance must give a net tangible benefit to the borrower. Additionally, the cash out refinance usually can’t exceed 80% of the home’s current value.
When to Refinance Your Mortgage
Knowing that there are relatively few limitations on how often you can refinance, it may be tempting to refinance every time interest rates dip. However, it’s not always a good idea to refinance. Just like when you first obtained your loan, you have to pay closing costs when you refinance. These can be between 2-5% of the total loan. To actually benefit from refinancing, you’ll need to do some math and determine if the monthly savings will cancel out the additional closing costs.
There are a few reasons people typically refinance:
- Wanting to take advantage of lower interest rates. If the interest rate is significantly lower than when you obtained (or last refinanced) your mortgage, you may want to refinance so you can reap the benefits.
- You want to lower your monthly payment. Whether your credit score has improved or you think you can get a better interest rate, you may be able to lower your monthly payment by refinancing.
- You want to build equity faster. Some people refinance to a shorter-term mortgage in order to build equity and pay off their loan faster. If your financial situation has improved since you originally obtained your mortgage and you would like to pay it off faster, you may opt to refinance and increase your monthly payment in order to do so.
- You need cash. A cash-out refinance allows the borrower to take out a new loan for more than their home is worth and receive their existing equity in cash. This is never an ideal choice but can be a solution for borrowers who find themselves in need of cash quickly.
Whether you want to take advantage of low interest rates, your life situation has changed, or you’re ready to take on a higher monthly payment and pay off your mortgage faster, there are many reasons to refinance. There is no clear right or wrong answer when it comes to how frequently you should refinance. Refinancing should be considered on a case-by-case basis, and you can work with your lender to decide if it’s the right time for you.
There may be a waiting period before you can refinance, but there is no limit to how many times you can do so. There is a limit, however, to how many times you can refinance and still benefit. Before refinancing, calculate your closing costs and compare them to how much you will save each month. Consider your end goal, whether it’s to have a lower monthly payment or shorten the length of your loan, and how refinancing may or may not help you reach it.
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