How Often Can You Refinance Your Home?

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

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

Let’s explore how often you should refinance your home so you can better decide if taking this step is a good idea.

Legally, there isn’t a limit on how many times you can refinance your home loan. However, mortgage lenders do have a few mortgage refinance requirements you’ll need to meet each time you apply for a loan, and some special considerations are important 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 opted for a cash-out refinance in the past.

Every time you tap into your equity, you reduce the percentage of your home loan that’s available for you to 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 refinancing.

Cash-Out Refinance Example

Imagine paying off $50,000 of your home loan and having a remaining principal balance of $100,000 on your mortgage. Now, let’s suppose you want to do $30,000 worth of repairs, so you opt for a cash-out refinance. Your new loan principal is $130,000 after taking away $30,000.

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

Although your loan balance is now $128,000, you only have $22,000 worth of equity in your home. Most lenders let borrowers only refinance 80% – 90% of their loan value.

In this scenario, if you take out $20,000 in a cash-out refinance, you’ll be removing over 90% of your home equity. If this is your plan, you’ll likely have trouble finding a lender 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 a lender that is willing to let you use over 90% of your equity on a non-VA loan, you probably won’t get the best possible interest rate. As a result, you’ll pay thousands of dollars more in interest by the time you pay off your home loan.

Refinancing multiple times can be beneficial for several reasons. Below, we’ll look at some situations where another refinance could be to your advantage.

If You Want To Obtain A Lower Interest Rate

You may want to refinance your loan again to take advantage of a lower interest rate. 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, perhapsyou 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 $77,754 in interest by the time your loan matures. If you take the refinance, you pay $68,153 total in interest. Lowering your interest rate by just 0.5% means you’ll save  $9,601 in interest over the life of the loan.

If You Want To Change 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 – maybe from a 30-year to a 15-year term – so you can pay your mortgage 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.

If You Want To Eliminate PMI Or Your Mortgage Insurance Premium

Did you buy your home with a conventional loan and 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.

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. With a Federal Housing Administration (FHA) loan, 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 itemsto weigh before refinancing 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, you’ll need to pay closing costs every time you refinance. 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’ll need to pay your application fee whether or not you actually complete the refinance process.
• Appraisal fees: Have you recently had an appraisal? Even if so, your lender might require another one before you can refinance. This helps ensure the lender isn’t loaning out more than the home is currently worth.
• 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: In some states, you’ll need a real estate attorney to finalize your loan and review it before closing. Attorneys’ fees can vary significantly from state to state.
• Title search and insurance: When you refinance with a new lender, they need to know 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 apply for a new home loan. However, you won’t need a new owner’s title policy.

Closing costs vary by location, but you can usually expect to pay around 3% – 6% 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 beingoffered 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^® doesn’t 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 had one refinance and reset your loan’s term. Before you apply for a new refinance, read through the terms of your last refinance and see if your loan has an early repayment penalty.

Let’s answer some of the most frequently asked questions about how often you can refinance your home.

Should I refinance my mortgage multiple times?

You should carefully review all relevant factors each time you might consider refinancing your mortgage. One important factor 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’s likely not best to refinance if you rush into it without carefully reviewing all relevant factors.

Does refinancing more than once hurt my credit?

Your credit score may take a hit every time you refinance since you’re taking out a new loan, but most borrowers find that their score recovers or even improves after a few months of 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 for you, refinancing your home more than once can help you manage your monthly budget, take advantage of investment opportunities and/or pay for a major life expense. If you’re not sure about refinancing at this time, talk with a financial advisor who can help you make this determination.

Ready to refinance? Start your application online with Rocket Mortgage to begin exploring your options. You can also give us a call at (855) 762-0560.