When interest rates fall, refinancing your mortgage can be tempting. But can you refinance more than once? And more importantly, should you? The short answer is that you can refinance as often as you want, but there are some important factors to consider beforehand.
What is a mortgage refinance and how does refinancing work?
The process of refinancing is similar to taking out your original mortgage. Typically, when you refinance your mortgage, you replace your existing mortgage with a new loan that offers updated terms. Then, you use your new loan to pay off the original. Once approved and closed, you’ll have a new interest rate, loan terms and monthly mortgage payment.
Refinancing could help you snag a lower interest rate, add to the equity of your home or pull out cash from your existing equity. Another reason to refinance could be to switch from an adjustable-rate mortgage (ARM) to a fixed-rate one. Knowing your “why” behind the process can help guide your decision making as you look for a lender.
Read more: 6 reasons to consider refinancing.
Can you refinance your home multiple times?
There’s no legal limit to the amount of times you can refinance your mortgage, but that doesn’t mean refinancing repeatedly within a short period of time is always the best idea or allowed by all lenders. Keep in mind individual lenders may have credit score and debt-to-income ratio ( DTI) requirements in order to refinance. Be sure to take that and the below factors into consideration to avoid making home refinancing mistakes.
Waiting periods
Depending on the type of home loan you have and the kind of refinance you do, you may be faced with a waiting period.
If you’re seeking a rate-and-term refinance (meaning you’re either changing your interest rate, loan length or both) for a conventional loan, there typically is no waiting period.
Government-backed loans (like an FHA, VA or USDA loan), each have different requirements depending on the type of refinancing you choose. For example, the FHA rate-and-term refinance requires you to wait seven months and you need to have made at least six on-time payments on the mortgage.
Cash-out refinances almost always require a waiting period of at least six months between refinances. Plus, you have to build up enough equity in your home to execute a cash-out refinance, which may take longer.
Some lenders, regardless of the loan type, may require what’s called a “seasoning” period — which means you can’t refinance again for at least six months with that lender. But they can’t stop you from refinancing with a different lender in the meantime.
Cost considerations
Refinancing isn’t free, and you’ll likely pay fees when doing so. From appraisal fees to origination fees and more, closing costs of refinancing are similar to those when you close on a home sale. It’s important to weigh the costs against the potential savings to determine if refinancing is worth it.
Use our free refinance calculator to see the difference a new loan could make.
Prepayment penalties
While not common, some lenders may penalize you for refinancing before your loan terms are up. Prepayment penalties may cancel out any cost savings you achieve through refinancing. Be sure to carefully read your loan terms and check for fees before carrying out a refinance.
Refinance when you want — but be strategic
Refinancing more than once — or even many times — over the course of homeownership may make sense for you and your financial situation. Just remember the cost saving benefits of refinancing can take time to come to fruition, so be sure you’ll save before your mortgage is fully paid.
