How Frequently Can One Refinance?
You are free to refinance your house as often as you choose. Or at least as often as it makes financial sense, keeping in mind that you will typically prolong the loan term and incur closing expenses with each refinance.
Before refinancing, several lenders and loan types impose a six-month waiting period. In certain instances, you can circumvent these restrictions by refinancing with a different lender. Therefore, if you’re ready to refinance but your present lender denies you, inquire with many other lenders about your possibilities.
You May Refinance as Frequently as It Makes Economical Sense
Typically, refinancing will reduce your interest rate and monthly mortgage payments. Considering this, it may make sense to refinance your loan numerous times during its lifetime. Each refinance has the potential to reduce your interest rate and save you thousands of dollars in interest payments.
Numerous lenders impose a six-month waiting time between your previous mortgage and your ability to refinance. However, if you have a traditional loan and are not withdrawing cash, you may be able to refinance sooner if you choose a different lender.
It may be prudent to refinance many times if:
- You can reduce your mortgage’s interest rate and monthly payment.
- You will save more over time than you pay in refinancing closing charges.
- Resetting your loan’s duration will not increase total interest expense.
- You can pay off your mortgage quicker.
You may refinance as often as you choose, so long as ,there is apparent financial gain each time.
How Long Must You Wait After Refinancing Before You May Refinance Again?
There is no restriction on the number of times a mortgage can be refinanced. However, there are waiting periods that govern how quickly you may refinance after purchasing a house or refinancing. And you must determine if it makes financial sense to refinance many times.
The frequency with which you can refinance your house depends on the sort of loan you have. In addition, they differ for rate-and-term vs. cash-out refinances.
Delay times for refinancing:
- No refinancing waiting time with conventional loans
- Refinancing a government-backed loan requires a six-month waiting period.
- Refinance with cash-out: Six-month waiting period
- Unrelated to the type of loan, some lenders impose a six-month waiting period.
Numerous standard mortgages do not have a refinancing waiting period. You may be qualified to refinance shortly after loan closure. However, you may have to wait if the government backs your mortgage. For instance, the VA Streamline Refinance and FHA Streamline Refinance programs require you to wait at least six months following the closing of your current mortgage before you may refinance.
Additionally, many lenders have “seasoning” requirements. Typically, you must wait six months before refinancing with the same lender. A seasoning requirement will not prevent you from refinancing with a different lender. You can browse around and go with the lender that saves you money.
Cash-Out Refinancing 101
There are different laws about how long you must wait and how frequently you may refinance if you wish to cash your home equity when you refinance. Before you may withdraw cash from a conventional mortgage, most lenders require that you wait at least six months following the closing date.
Before applying for a cash-out refinancing, you must have made at least six consecutive payments on a VA loan.
Using a new, low-interest mortgage, many homeowners employ cash-out loans to leverage their home equity for repairs or home upgrades. Some homeowners use the loan profits to consolidate debt, while others may use them to bolster their investment portfolios or pay for their children’s education.
Regardless of your objectives for the funds, you must determine how the new mortgage will affect your financial status. Additionally, you must have sufficient home equity to qualify for a cash-out refinancing.
Minimum Required Equity for a Cash-Out Refinance
On most traditional mortgages, your cash-out refinancing loan cannot exceed 80% of the value of your house. This means you must have more than 20% home equity to cash out without reducing the house’s value. The same holds for FHA cash-out refinance loans.
VA loans are an exception to the norm. They permit cash-out loans of up to 100% of the home’s worth; however, many lenders limit loan-to-value to 90%.
In any scenario, unless you purchased the property with a 20% or greater down payment, it takes time to accumulate this amount of equity. This restricts the number of times you may utilize a cash-out refinance throughout your mortgage, as you must have adequate home equity each time.
How Quickly Should You Refinance Your Residence?
If you wish to save money, you cannot refinance your home loan too early or frequently. It is typically preferable to refinance your loan early rather than later.
This is because refinancing often results in a new 30-year loan term. In many instances, the longer you wait to refinance with a new loan, the longer you will end up paying interest and the more you will pay throughout the loan.
Assume your initial loan amount was $200,000 with an interest rate of 4.7%. Your mortgage payment would be $1,037 per month. After one year, the total remaining on your loan would amount to $196,880.
If you refinance your loan after the first year to a 3.7% rate, you will save $32,200 in interest over the next 30 years.
If you refinance your loan after three years, the debt would be $190,203. Refinancing your 30-year mortgage into a 3.7% rate at this time will only save you $18,371 in interest payments.
Therefore, why are you saving more when the loan balance after three years is over $7,000 less? Each time you refinance, your loan term is reset to 30 years. The longer you wait to refinance, the longer it takes to pay off your mortgage, reducing the interest you save.
Why You Should Refinance Several Times
Whether this is your first or fifth time refinancing, here’s how to determine if a new loan is suitable for your financial circumstances.
Reduce the Interest Rate
The most typical purpose for several refinances is to obtain a cheaper interest rate.
If you took out a loan when interest rates were higher, or if your credit score has improved after you purchased the property, you can reduce your mortgage rate. This will lower your monthly payments and can save tens of thousands of dollars throughout the course of the loan’s duration.
For example, a $300,000, 30-year fixed-rate loan with a 6% interest rate will cost about $347,500 in interest over the life of the loan. However, if you refinance at a rate of 4%, the total interest expense lowers to around $215,000. Depending on how far along the loan you are when you refinance, you might save more than $100,000 over 30 years.
Reduce Your Monthly Mortgage Costs
Refinancing can reduce your monthly mortgage payment even if you cannot reduce your interest rate. This is because a new loan extends your repayment period, giving you more time to pay off the remaining sum. This can be useful if you’re in a tight financial situation and need to save money but can’t reduce your interest rate since rates have increased.
Extending your loan term without reducing your interest rate will likely raise the total interest you pay throughout the life of your loan. Therefore, this may be a dangerous technique.
Utilize Your Home Equity
A cash-out refinancing gives you access to the equity in your house. Some borrowers utilize the lump payment to pay off high-interest debt, such as credit card debt, or to make home modifications. This sort of loan might be beneficial if you can simultaneously reduce your interest rate and access the equity in your house.
Instead of a cash-out refinance, homeowners who cannot refinance to a lower interest rate may seek a home equity line of credit (HELOC) or a home equity loan.
Reduce the Length of Your Loan
If you’ve been making payments on your original mortgage for many years, refinance into a 15- or 20-year mortgage. Interest rates for shorter-term loans are often lower than those on 30-year mortgages. Also, the years you will pay interest on the loan decreases. Therefore, this method can result in substantial savings over time.
Remember that a shorter mortgage term will result in higher monthly payments because the same loan amount will be repaid in less time.
How to Account For Refinancing Expenses
If refinancing your present mortgage may result in reduced monthly payments and a quicker payoff of the loan total, then it is likely financially prudent. Using a refinancing calculator might assist in determining whether obtaining a new loan is appropriate, given your current financial condition.
However, each individual’s economics are unique. A good rule of thumb is to determine how long it will take to recoup your closing expenses and begin seeing savings.
On average, you will spend between 2% and 5% of your loan on closing expenses. You can determine how many months it will take to return your investment and break even by combining these expenditures with the amount you’ll save on payments.
Refinancing is likely the best option if you do not intend to move within the next 22 months. Generally, any break-even below 24 months is seen as a favorable standard.
You can refinance as frequently as you desire so long as it matches your financial objectives. No regulation states you may only refinance once
Today’s Mortgage Refinance Rates
The refinancing rates of today have increased from their all-time lows during the epidemic. However, there are still valid reasons to refinance. Refinancing might be best if you wish to cash out equity, decrease your loan term, or remove mortgage insurance.
Even if you just purchased or refinanced your house, it may be a while before considering refinancing again. Consult with a lender to see if a refinance benefits your situation.