Re-financing your mortgage can help reduce your monthly payments and save you money over the life of the 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 where to turn.
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How often can you refinance a mortgage?
There is no limit to the number of times you can refinance a mortgage, although a lender can force a wait between when you close a loan and refinance to a new one. Or have lenders called something a “spice” claim – a period you have to wait before refinancing, generally at least six months.
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However, this can only apply if you are refinancing with your current lender; you could find a lender who is willing to do the refinancing sooner and completely break the six month rule. (Keep in mind that if you pay a refinance for money, the waiting period is, in many cases, six months fixed.)
For government-insured mortgages, there are several requirements. Homeowners who have an FHA loan and are looking to apply for an FHA streamline refinance are required to wait 210 days (seven months) from the closing date of the first mortgage, and six months from the maturity date of their first mortgage payment, before they can refinance. For a refinancing of FHA there is only a six month payment obligation.
Similarly, homeowners with a VA loan who are considering refinancing a VA streamline (called an interest rate cut reduction interest rate, or IRRRL) are required to wait 210 days from the date of their first mortgage payment as the date the sixth mortgage payment is made, whichever is later. For a refinancing of VA, the required waiting period is also at least 210 days after the closing date of the first mortgage.
In addition to these timelines, when considering how often you can repay a mortgage, you want to make sure it makes financial sense. If the new interest rate is not significantly better than what you currently have, you may not be able to save much after paying the cost of refinancing.
How much it costs for multiple refinances
It does not always make sense to refinance your home as interest rates go down as your credit score goes up. Just like your first mortgage has a refinancing closing cost. Each time you refinance, you will have to pay fees, such as for the application, appraisal, credit check, lawyer and title search. 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 principle.
The key to achieving savings is to keep in mind how much you lower your interest rate, and how long you intend to stay in the house. If you plan to live long term, it may make more sense financially more than once, but you need to consider your closing costs carefully.
Let’s say you have a 30-year fixed mortgage for $ 240,000 with 5.71 percent interest. 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 if you decide to refinance 3.7 percent and a 15-year loan, cut your monthly payment to $ 1,221 and lower $ 31,108 in interest. If the closing costs are equal to 3 percent of the principal, like $ 5,055, you would break even in about two years. However, if you charge 5 percent of the capital ($ 8,425), it would take four years before you recovered it.
| Pretty main character | Start repaying | The final cost | 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 a second time? Your balance is now $ 164,902. Suppose you can lower your rate to 3.19 percent and extend the loan for 15 years. You would bring your monthly mortgage payment to $ 1,154. If closing costs remain the same (3 percent of the principal, as $ 4,947), it would be six years to get them back. If your closing costs were 5 percent ($ 8455), it would be 10 years.
| Pretty main character | Start repaying | The final cost | Break-even |
|---|---|---|---|
| $ 164,902 | 15 years | 3% ($ 4,947) | 6.1 years |
| $ 164,902 | 15 years | 5% ($ 8,245) | 10.2 years |
Well, what if you refinance a second time, you get a lower rate, but only? For example, if you were to repay from 3.7 percent to 3.68 percent, now on a 30-year loan to reduce your payment (at 15, you would have a higher payment), you would close yourself when closing costs in less than a year, and have a lower payment ($ 757), but you would also end up with higher interest in total – more than $ 60,000.
| Pretty main character | Start repaying | Interest rate | Interest savings | The final cost | 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 there is once, twice or even more refinancing than that it is worth it.
Keep in mind that there may also be a penalty of prepayment, such as a fee you will incur if you repay the loan before the term expires, which can add to your costs. Make sure you read the small print of your loan to see if there is a penalty, and, if so, consider if it is worth paying it off in the long run.
Is it a good idea to refinance?
Refinancing your mortgage can offer some important benefits. Here are a few scenarios if it could make sense for your financial situation:
- Interest rates are much lower. The general rule of thumb is to refinance rates that are a minimum of 1 percentage point lower than your current one, or even more, depending on your closing costs. You can reuse the Bankrate calculator to see if the math works in your favor.
- Your credit score has significantly improved. If your credit score is much higher than it was when you first got your mortgage, you may now be eligible for lower rates, and it will help you save.
- You are interested in a refund. If you need extra cash to complete renovations, debt consolidation or for a large expense, repaying a sum of money may be worth the effort, even if you have a higher interest rate.
- You’re having trouble keeping up with current payments. Your situation for income as cash flow can change at any time. If you need some breathing space, refinancing can make sense, especially if you are eligible for a lower rate. Keep in mind, however, that each time you extend your loan term, you can generally pay more in interest.
Bottom line
Now that you know how often you can refinance your home, you want to do some careful research to see if it’s worth doing multiple times. If you qualify for a rate that is much lower than what you have now, you could save thousands in interest. It may be that lowering your payments can help you prevent your loan from going default as well.
No matter your reason, it is a good idea to shop with multiple lenders to find the best rates and terms.
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