How Often Can You Refinance Your Home? Is There a Limit?
Getting a lower rate on a mortgage refinance is great, but is there a limit on how often you can refinance?
Contributing Writer at Tally
May 26, 2022
This article is provided for informational purposes only and should not be construed as legal or investment advice. Always consult with a professional financial or investment advisor before making investment decisions.
Homeownership is advantageous in many ways, but mainly because you have an asset that normally appreciates over time. When buying a home, most people take out a mortgage. Like many loans, a mortgage includes an interest rate that’s set at the time you take out the loan, unless it’s a variable rate loan.
Over time, interest rates and financial situations change, which can lead to borrowers wanting or needing to refinance their mortgage.
But how often can you refinance your home? Is there a hard rule on the number of refinances you can do? We cover this and more below.
How often can you refinance your home?
In a legal and financial sense, you can refinance your home as often as you’d like, as long as your current mortgage doesn’t include any clauses requiring a waiting period before refinancing.
For example, if you refinance your home on a Monday and interest rates fall significantly on Friday, you can theoretically refinance into the new, lower interest rate.
The big caveat is whether it makes financial sense to refinance.
When does refinancing make financial sense?
As a homeowner, refinancing can do a few things:
It can lower your interest rate, which may lower your monthly mortgage payment and save you cash over the life of the loan.
It can further lower your home loan payment by extending the terms.
It can streamline your mortgage payments into one monthly payment, if you have multiple mortgages on your home.
If you opt for a cash-out refinance, it can provide extra funds at closing to consolidate debt, complete home repairs and more.
While lower payments and consolidation of multiple mortgages into one can be great benefits, you’ll want to ensure that refinancing makes financial sense for you. There are two factors to consider to determine if a mortgage refinance fits your financial situation.
First and foremost is the interest rate. You want to verify the interest rate is lower than the one you already have. And we’re not talking minuscule fractions of a percent. It’s a good idea to target at least a half percentage point, preferably more.
Go through the loan terms and compare the new mortgage offer’s interest rate to your current mortgage rate. If the refinance rates are saving you at least a half percentage point, you are likely on a good path toward potential savings.
There is also the ability to refinance from an adjustable-rate mortgage (ARM) into a fixed-rate mortgage. If the new fixed rate is now lower than your ARM rate, you will not only save on interest, but you’ll also lock in at that rate and not have to worry about future interest rate increases.
Total loan costs
You also want to look at the total cost of the loan, which you’ll find in the loan disclosures when the lender submits the offer to you. This cost includes the interest charges and any other fees associated with the loan, including administration fees, underwriting fees, origination fees and other closing costs.
Compare these costs to your current mortgage loan’s remaining interest and private mortgage insurance (PMI) charges. If the new loan costs are greater than the total charges remaining on your current loan, the refinance likely doesn’t make financial sense.
The PMI is a big factor to consider when refinancing from a Federal Housing Administration (FHA) loan into a conventional loan. FHA loans usually require costly PMI for the life of the loan, and a refi into a conventional loan can eliminate this if there’s enough equity in the home — the home’s value minus any outstanding loan amounts on the home.
Each mortgage lender will have its own minimum equity requirements for PMI. Eliminating PMI premiums can save you a few hundred dollars per month.
There are some less likely scenarios when you may accept a loan with higher costs. One is when your current mortgage payment no longer fits your budget, and the new mortgage’s monthly payment is a better fit. The other is if you’re using your home’s equity to get a cash-out refinance — which is when you borrow more than you need to pay off your old mortgage and receive the excess cash at closing — to pay off high-interest debt, such as credit card debt, that will offset the extra costs associated with the mortgage.
Federal law now outlaws prepayment penalties on certain types of mortgages, such as USDA, FHA and VA loans. However, if your mortgage meets specific criteria, the lender may include a prepayment penalty. But, these can only be assessed during the first three years of the mortgage and are capped at 2% of the loan balance in the first two years and 1% in the third year.
When considering a refinance, double-check your loan documents for this fee. If it includes this fee, add it to the total costs of refinancing and recalculate to ensure you’re still saving money with the refi.
What are my refinancing options?
There are many refinancing options available, and each has its own benefits and drawbacks. Here are some common options.
Rate and term refinance
The purpose of a rate and term refinance is to take advantage of lower interest rates or shorten or lengthen your loan terms.
Cash-in or cash-out refinance
In a cash-out refinance, the borrower is using the equity in the home to qualify for a mortgage that exceeds the current mortgage balance. This will leave excess cash that the borrower will receive at closing. The cash can be used at the borrower‘s discretion, but it is typically used for debt consolidation or home improvements and repairs.
In a cash-in refi, the borrower pays a significant down payment at closing to help reduce the loan amount. This increases the equity in the home and can help the borrower get an even lower interest rate.
If you have an FHA or USDA loan and wish to refinance to lower your interest rate or change your loan terms, you can opt for a streamline refinance. This program allows you to refinance the property without going through the FHA or USDA process, including bypassing appraisals and inspections.
The reverse mortgage option is available for homeowners who are 62 years or older and meet other qualifications. In a reverse mortgage, the homeowner makes no payments while still alive and may even receive funds from the home’s equity.
However, once the homeowner dies, the loan balance is due immediately. The heirs often choose to sell the home to repay the lender, but the heirs may also perform a refi of their own to convert it to a standard mortgage.
A no-closing-cost mortgage has no upfront fees for the borrower to pay. Instead, the lender covers these fees with a higher interest rate or rolls the fees into the loan.
For borrowers in default and nearing foreclosure, a short refi may be the last option. The lender will replace your mortgage with one with a lower balance and a lower payment to make it more affordable. You keep your property, and the lender mitigates the losses it would have incurred in the foreclosure or short-sale process.
Keep in mind that a short refinance can negatively impact your credit score.
How many times can you refi?
So, how often can you refinance your home? In a legal sense, as often as you’d like. However, you want to ensure the refi meets your financial goals and makes financial sense to you. This typically means you’re lowering your overall loan costs or lowering your payment to better fit your budget.
But there are other ways to save money using a refi, including getting a cash-out refi and paying off high-interest debt with the proceeds.
For more personal finance tips delivered to your inbox, sign up for the Tally newsletter today.