How Many Times Can You Refinance Your Mortgage?

mature couple looking at their home

If you’re considering a mortgage refinance, the first thing you need to do is figure out if you’re actually saving money. Don’t take someone’s word for it, don’t trust a random blog or website.

Get a mortgage calculator or find an amortization schedule you can use with your favorite spreadsheet software and put your numbers in. When you can show a savings (after all the fees) over the amount of time you plan to continue living in your house, only then should you proceed with refinancing your house.

Refinancing can be a smart option when it’s done strategically and not because your gut tells you that a quarter percent lower interest will save you lots of money. There’s a lot more to your mortgage costs than the basic interest, though it’s hard to tell from the way some lenders advertise their products. This article aims to help you determine whether refinancing your mortgage is right for you.

What does it mean to refinance your home loan?

When you refinance a home, you replace your mortgage with a new home loan with different terms. Many people decide to refinance to get better terms—and, while there are a variety of refinancing options, if you like your mortgage, you probably don’t need to refinance.

The specific terms you’ll be offered for rate and term refinances can vary based on specific factors like location, political stability, inherent risk (economic factors), projected risk, currency stability, credit scores, banking regulations, and the equity in your home. While the most common form of refinancing is for primary residences, you can also refinance second homes or investment properties.

How many times can you refinance your mortgage?

When it comes to having a mortgage, less can be more. A smaller interest rate is great, and less mortgage insurance good, too—together they spell a lower payment. That’s why it’s the ultimate in disappointments when you just finish your refinance to discover that rates have dropped again.

In theory, you can refinance as many times as you want. Some lenders will want to see that you’ll make the payments first, so they’ll require a short period between mortgages to establish that you are actually capable of paying (six months is a common length of time). Others will charge you a prepayment penalties for early payoff (paying your existing mortgage off before it was due).

Before you do anything, though, remember: every time you refinance, it costs you money. That means that you’re going to either have to fork over thousands of dollars for a very small percentage gain or lose that much equity by rolling those fees into your mortgage. Frequent refinancing usually isn’t worth the trouble.

In some cases, you’ll pay more than you would have if you’d paid the fees with cash—because you’re now paying interest on them, too. Every time you refinance, you add to the balance of your loan and reduce any equity you’ve accumulated. Since you tend to pay mainly interest in the beginning of a mortgage, you’re barely making a dent in your loan principal anyway. It’s an ugly cycle that can end in big problems for you if you keep going and the market does anything but improve dramatically.

When should you refinance your mortgage?

Having a mortgage eventually leads to the inevitable question, “When should I refinance my mortgage loan?” The good news is that you don’t have to refinance your mortgage ever, as long as you like the terms and your payment is doable. However, there are certain situations that are pretty good reasons to go through the process.

What are some reasons to refinance?

Accumulation of Fees. Refinancing to save money makes sense, but only if you’re actually saving money. Take a look at the bigger picture. Does that refinance really save you money once the loan and closing fees are included? If the answer is not a clear yes, beware. You are about to put yourself further in debt for no good reason.

Lengthening Your Loan Term. Having a 30-year mortgage is torture enough, but refinancing it repeatedly just makes that term longer. Unless you’re refinancing to shorten the term to 15 or 20 years, you’re literally resetting the clock each and every time you go to the closing table. Everything starts over, and you’re back at square one. While it may be true that your payment may be smaller if you didn’t cash out, you’ve got another 30 years to think about what you did.

Chewing Through Your Equity. Some mortgage refinances will allow you to roll your fees into your new mortgage, provided your home has the equity necessary to do so. The problem with this is that many homeowners get the idea that they’re not paying anything for the refinance.

Does refinancing make sense for me?

Sometimes you have a gorgeous mortgage that really can’t get much better, no matter how low rates drop. Maybe you have a really low mortgage insurance rate that can’t be touched now, or perhaps you have some awesome features of your mortgage, like the ability to sell it with your home to a new buyer who might pay more for the privilege (this is called an assumable mortgage). Remember that simply because one mortgage has a lower interest rate doesn’t mean it’s a better mortgage. There’s always more to it than that.

Why refinance your home?

Sometimes refinancing your home is a really smart step to take. Here are a few reasons why people generally refinance:

Better interest rate: Many people refinance because there may be a better interest rate, which typically means a reduced monthly payment.

Consolidate other debts: If you have a variety of high-interest debts, such as balances on multiple credit cards, you may want to hire a debt consolidation company in order to reduce and streamline your debts into a single monthly payment. Since a refinance can lead to lower interest rates (and therefore increased cash flow), it may make it easier to for you to pay this reduced monthly payment. Despite that, it’s important to realize that some companies advertise debt consolidation without actually rendering services (in other words, they could rip you off!) That’s why it’s essential to do plenty of research before paying anyone money.

Reduce monthly repayment amount: For example, if you had to take a pay cut from work and you didn’t know how long it would take you to get back to your usual salary, then you might opt for a longer term of the loan (like from a 15-year loan to a 30-year loan). Refinancing to a longer term loan lowers the amount you pay monthly. And if your financial setback is just temporary, you can always consider refinancing back to a shorter term loan.

Reduce interest rate: Let’s say you got a promotion and you want to pay off your mortgage sooner in order to not pay as much interest. In this situation, you might want to refinance your mortgage to fix these terms (like turning a 30-year mortgage into a 15-year mortgage).

Reduce risk: If you want to reduce your risk and keep your mortgage payments steady, you can also refinance an adjustable-rate mortgage into a fixed-rate home loan. That way, you’ll never have to worry about your payments going up simply due to changes in the housing market.

Free up some cash: If you need to take some cash to pay your bills, you might also want to consider a cash-out refinance. While this can provide you the necessary funds, it usually results in a longer-term (and sometimes higher interest rates).

In the U.S., you don’t usually pay any upfront fees to refinance your mortgage.  Remember, refinancing can be the most beneficial when current market interest rates are substantially lower than the rate you’re currently paying. As with all things home loans, it’s important to do your homework.

Is refinancing expensive?

No matter how easy your mortgage refinance is, you should keep in mind that it will cost you something. Those costs may be folded into your refinance if you have the equity, or you may have to pay closing costs. Make sure the price you’re going to pay for the refinance is worth it.

The cost of a refinance can vary widely, depending on the program you’re using, the type of bank that’s doing the financing, and whether or not it’s a streamline refinance. So, it’s a good idea to get the actual cost information from your future lender. If you’re not that far along, a very rough estimate you can use for now would be about three percent of the balance you intend to refinance (for example, if you owe $150,000, but you want to cash out a little equity and borrow $200,000, you’d figure it on $200,000).

Divide that figure by the number of months you intend to continue paying your mortgage and add that number to the new mortgage payment. In the above example, if you’re staying five more years, at three percent, it’s an extra $100 a month. If you see a small savings, then you’re already ahead of the game.

What are some examples of best times to refinance?

There are many situations when it could be smart to refinance your mortgage, provided it makes financial sense. The most common are listed below.

Recapturing some home equity. You’ve been paying your mortgage faithfully for two decades, but that kitchen is still glaring at you with its dated, worn-out appliances. Refinancing to cash out some equity and bring your kitchen up to date is generally a good move, though you can also do this with a home equity loan or a HELOC.

Getting more favorable loan terms. When you first took your mortgage out, you were fresh off the turnip truck, had very little experience in your field and your credit was only so-so. Now, your career is stable, your income has increased, and your credit score has improved. You can probably get some good terms on a refinance, certainly better than the ones you started with.

Turning an adjustable rate mortgage into a fixed rate mortgage. Adjustable rate mortgages have been problematic for a lot of people, which is why it’s generally recommended to refinance before they start to adjust. Even though your adjustable rate is capped, that cap can still result in a payment that’s alarmingly high. Nail that rate down, even if it’s a bit more than you’d prefer in a perfect world.

Changing mortgage programs. You initially took out a loan through an FHA program, but the rates on conventional mortgages are looking pretty good these days. Although you can streamline that FHA mortgage to get the best rate available, it’s nothing like what the conventional loans at Main Street Bank have on offer. You’ll have to do a traditional mortgage refinance to change programs.

Shedding mortgage insurance for good. Mortgage insurance is the bane of so many homeowners’ existences. When you need it, there’s nothing else for it, but you intend to pay your mortgage payment, so why are you forced to carry this stuff forever? Once you get your home’s loan-to-value ratio at 78 percent with that FHA program, you can finally escape mortgage insurance by refinancing. Ask your banker before you commit, just to be sure you’re moving into the right program for long-term savings.

To learn more about the refinance process, fill out the form below to speak with a refinance specialist.