Refinancing your mortgage can help lower your monthly payments and save you money over the life of your loan, but doing so more than once (or many times) can cost you more than you expect. Here’s what you need to know about how often you can refinance your mortgage, including what to look out for.
How often can you refinance a mortgage?
There is no limit to how many times you are allowed to refinance a mortgage, although a lender may apply a waiting period between closing a loan and refinancing a new one. Lenders often have what is called a “spice” application – a period of time you have to wait before refinancing, generally for at least six months.
However, this may only apply if you are refinancing with your current lender; you can find a lender who is willing to do the refining faster and keep the six-month rule. (Note that if you are considering a cash refinance, the waiting period is, in many cases, as strong as six months.)
For mortgages secured by the government, there are different requirements. Homeowners who have an FHA loan and are looking to make a simple FHA refinancing are required to wait 210 days (seven months) from the first mortgage closing date, and six months from the due payment date their first mortgage, before they are able to refine. For an FHA cash refinance, there is only a six-month payment requirement.
Similarly, homeowners with a VA loan who are considering a VA simplification refinancing (called an interest rate reduction refinancing loan, or IRRRL) are required to wait either 210 days from the date of their payment. first of the mortgage or from the date when the sixth mortgage payment was made, whichever is later. For a cash refinance by VA, the required waiting period is also at least 210 days from the closing date of the first mortgage.
In addition to these timelines, when considering how often you can refinance a mortgage, you want to make sure that doing so makes financial sense. If the new interest rate is not significantly better than what you have now, you may not save much after factorizing in the cost of refining.
How much does it cost for multiple refineries
It does not always make sense to continue refinancing your home if interest rates go down or your credit score goes up. Like your first mortgage, a refinancing has closing costs. Whenever you refinance, you have to pay fees, such as claim, appraisal, credit check, lawyer and title claim. These can vary depending on your area and the lender, although it is common to pay anywhere from 2 percent to 5 percent of the loan principal.
The key to making savings is to consider how much you are lowering your interest rate and how long you plan to stay home. If you plan to live there long-term, refinancing funds more than once may make sense, but you need to carefully document your closing costs.
Let’s say you have a 30-year fixed mortgage for $ 240,000 with an interest rate of 5.71 percent. Your monthly mortgage payment is $ 1,394, excluding insurance and taxes.
Fifteen years into your term, your balance is now $ 168,498. Rates have dropped, so you decide to refinance to 3.7 percent and a 15-year loan, cutting your monthly mortgage payment to $ 1,221 and dropping to $ 31,108 interest. If the closing cost equals 3 percent of the principal, or $ 5,055, you would expect another two years or so. However, if you are charged 5 percent of the principal ($ 8,425), it will be four years before you recover them.
|Loan Director||Refinancing deadline||Closing costs||Break-even|
|$ 168,498||15 years||3% ($ 5,055)||2.4 years|
|$ 168,498||15 years||5% ($ 8,425)||4.1 years|
What if after six months you decide to refinance for the second time? Your balance is now $ 164,902. Suppose you can lower your rate to 3.19 percent and extend your loan for 15 years. You will reduce your monthly mortgage payment to $ 1,154. If the closing costs remain the same (3 percent of the principal, or $ 4,947), it will be six years to recover them. If your closing costs were 5 percent ($ 8,245), it would be 10 years.
|Loan Director||Refinancing deadline||Closing costs||Break-even|
|$ 164,902||15 years||3% ($ 4,947)||6.1 years|
|$ 164,902||15 years||5% ($ 8,245)||10.2 years|
Now, what if when you refinance a second time, you get a lower rate, but only slightly? If you refinance from 3.7 percent to 3.68 percent, for example, now on a 30-year loan to reduce your payment (in 15 years, you will have a higher payment), you would also expect to close costs in less than a year, and you have a lower payment ($ 757), but you will also end up with higher interest in total – more than $ 60,000.
|Loan Director||Refinancing deadline||Interest rate||Interest savings||Closing costs||Break-even|
|$ 164,902||15 years||3.68%||– $ 60,121||3% ($ 4,947)||10.6 months|
As you can see, it is essential to calculate the impact of closing costs, your new rate and how long you plan to live in the home to ensure that refinancing once, twice or even more than it is worth.
Keep in mind that there may also be a prepayment penalty, or a fee you are paid for if you repay the loan before the deadline, which can increase your costs. Be sure to read the excellent printout of your loan to see if there is a penalty, and if so, consider whether paying it off is worth it in the long run.
Is it a good idea to refinance again?
Refinancing your mortgage can offer several significant advantages. Here are some scenarios when it comes to your financial situation:
- Interest rates are much lower. The general rule is to look for refinancing rates that are at least 1 percentage point lower than the current one, or even more depending on your closing costs. You can use the Bankrate refinancing calculator to see if the math works in your favor.
- Your credit score has improved significantly. If your credit score is much higher than it was when you first got your mortgage, you may be eligible for lower rates now, helping you save.
- You are interested in a cash refinance. If you need extra money to complete renovations, consolidate debt, or spend a lot of money, a cash refinance may be worth it, though you will have a higher interest rate.
- You have trouble continuing current payments. Your income or cash flow situation may change at any time. If you need a breathing room, refinancing can make sense, especially if you qualify for a lower rate. However, note that whenever you extend your loan term, you may end up paying more interest overall.
Now that you know how often you can refinance your home, you will want to do some careful research to see if it is worth doing a few times. If you qualify for a much lower rate than you have now, you can save thousands on interest. It may be that lowering your payments can help prevent your borrowing from falling into default, too.
Regardless of your reason, it is a good idea to make purchases with multiple lenders to find the best rates and deadlines.