How Often Can You Refinance Your Home?

Are you having trouble making your mortgage payment each month? Or maybe you’ve refinanced your home once, only to find yourself second-guessing whether now would have been a better time to refinance?

Fortunately, refinancing can be done as often as it makes financial sense to do so. A mortgage refinance can help you manage your money more effectively and help lower your interest rate, remove private mortgage insurance or take cash out of your equity.

In this article, we'll look at how often you can refinance and help you decide when you should consider doing it.

There’s no legal limit on the number of times you can refinance your home loan. However, mortgage lenders do have a few mortgage refinance requirements that need to be met each time you apply, and there are some special considerations to note if you want a cash-out refinance.

Equity And Your Refinance

Remember: You need to have equity built up to take cash out against it. You might have less equity in your home than you think if you’ve taken a cash-out refinance in the past.

Every time you dip into your equity, you reduce the percentage of your home loan that you can use. Most lenders won't allow you to take out 100% on most loans. You’ll need to do some math and figure out exactly how much equity you have before you refinance.

Cash-Out Refinance Example

Imagine that you pay off $50,000 of your home loan and have a remaining principal of $100,000 on your mortgage. You want to do $30,000 worth of repairs, so you opt for a cash-out refinance. Your new loan principal is $130,000 and you take away $30,000.

Fast forward 2 years and let’s say that you now need $20,000 to pay off some debt. In the years after your refinance, you've paid only $2,000 off your principal after accounting for interest.

Though your loan balance is now $128,000, you only have $22,000 worth of equity in your home. Most lenders only allow you to refinance 80% – 90% of your loan value.

If you withdraw $20,000 in a cash-out refinance, you're taking over 90% of your equity. This means that you'll likely have trouble finding a lender that’s willing to originate your refinance. The exception is if you have a VA loan where you can cash out up to the full amount of your equity.

If you do find one, you probably won’t get the best possible interest rate, meaning you’ll pay thousands of dollars more in interest by the time you pay off your home loan.

There are several reasons why you might want another refinance. Here are some situations when it could be to your advantage.

Taking A Lower Interest Rate

Have interest rates lowered since you got your refinance? You may want to refinance again to take advantage. You can almost always save money if you’re able to lower your interest rate without changing the term of your loan.

Just a small change in your interest rate can save you hundreds, or even thousands, of dollars. For example, let’s say you currently have a 20-year mortgage loan with $150,000 left on your principal and you pay an interest rate of 4.5%.

You have the chance to refinance your loan with the same terms and an interest rate of 4%. If you don’t refinance, you pay $77,753.84 in interest by the time your loan matures. If you take the refinance, you pay $68,152.95 total in interest. Lowering your interest rate just 0.5% means you'll save over $9,601 in interest over the life of the loan.

Changing Your Loan Term

Income changes can happen at a moment’s notice. If your income has increased, you may want to refinance into a shorter loan term – say, from a 30-year to a 15-year term – so your mortgage is paid off earlier. If your income has decreased, you may want to refinance into another 30-year term to lower your monthly mortgage payment.

However, remember that every time you refinance your loan to a longer term, you increase the amount you pay in interest.

Eliminating Your Private Mortgage Insurance Or Mortgage Insurance Premium

Did you buy your home with a down payment of less than 20%? If so, you’re probably counting the days until you can eliminate your private mortgage insurance (PMI) payment from your conventional loan.

PMI is a special type of insurance that protects your lender if you default on your loan. PMI offers you no protection as the homeowner, but you must still pay the recurring premiums as a condition of your loan. When you reach the 20% home equity threshold on a conventional loan, you can ask your lender to cancel PMI if they haven’t done so automatically.

You may also want to refinance from an FHA loan to a conventional loan when you reach 20% equity. A Federal Housing Administration (FHA) loan can mean you must pay a mortgage insurance premium throughout the duration of the loan if you have a down payment of less than 10%. However, if you refinance from an FHA loan to a conventional loan, you won't have to pay for your lender's insurance as long as you have at least 20% equity in your home.

Refinancing more than once isn’t for everyone, even if the benefits seem universally attractive. Let’s look at a few things you need to consider before you refinance again.

Our mortgage refinance calculator can also help you get a handle on the numbers you’ll need to guide your decision.

You’ll Need To Pay Closing Costs Again

Unless you opt for a no-closing-cost refinance, remember that every time you refinance, you need to pay closing costs. Some common closing costs you’ll see when you refinance more than once can include:

• Application fees: Your lender might charge you an application fee when you request a refinance. You need to pay for your application fee whether you actually receive a refinance.
  
  
• Appraisal fees: Have you recently had an appraisal? Even if you have, your lender might require another before you can refinance. This helps ensure that the lender isn’t loaning out too much money.
  
  
• Inspection fees: You might need to get an inspection before you can refinance. Some states require certain types of inspections each time you refinance, while others only require inspections every 5 – 10 years.
  
  
• Attorney review fees and closing fees: You need an attorney to finalize your loan and review it before closing in some states. Attorneys’ fees can vary widely from state to state.
  
  
• Title search and insurance: When you refinance with a new lender, they need to know that you’re the only one who has rights to your property. Expect to pay title insurance and search fees again (even if you’ve recently refinanced) when you work with a new lender. However, you won’t need a new owner’s title policy.

Closing costs vary by location but you can usually expect to pay around 2% – 5% of your total loan amount. This can quickly cut into any money you're saving – especially if this isn’t your first refinance.

You’ll Need To Meet Your Lender's Credit Standards

Just like when you buy a home, you must meet your lender’s standards when you refinance. Have more debt, less income or a lower credit score now than when you last refinanced? You may have difficulty getting approved or may not be offered a better interest rate. Know your debt-to-income ratio, current equity and credit score before you apply.

You Might Face Prepayment Penalties

While Rocket Mortgage^® does not have a prepayment penalty, some lenders include clauses that penalize you if you pay off your loan before your term ends. For example, you may need to pay anything you saved in interest if you pay your loan off within the first 5 years of your term.

This can create a problem if you’ve already gotten one refinance and reset your loan’s term. Read through the terms of your last refinance and see if your loan has an early repayment penalty before you apply for a new one.

Should I refinance my mortgage multiple times?

You should carefully consider all relevant factors each and every time you consider refinancing your mortgage. One important factor to know is your break-even point, which tells you how long you need to stay in your home for your refinance to make financial sense. 

Is it smart to refinance my home more than once?

It can be smart to refinance your home multiple times as long as you’re improving your financial situation every time. It may not be smart to refinance if you rush into it without carefully reviewing all relevant factors.

Does refinancing more than once hurt your credit?

Your credit score may take a hit every time you refinance based on taking out a new loan, but most borrowers find that their scores recover or even improve after a few months of making on-time payments.

Refinancing a mortgage can help homeowners achieve their goals, from lowering your interest rate to removing private mortgage insurance. If it makes financial sense to do so, refinancing your home more than once can help you manage your monthly budget, take advantage of investment opportunities or pay for a major life expense. If you’re not sure, talk to your financial advisor to see if it makes sense for you.

Ready to refinance? Start your application online with Rocket Mortgage to begin exploring your options. You can also give us a call at (833) 326-6018.