How Many Times Can You Refinance Your Home Loan?

Refinancing your mortgage can help lower your interest rate, reduce your monthly payments, or give you cash to use for other financial goals. But just because you can refinance over and over again doesn’t mean you should. Here’s what to know about how often you can refinance your home loan.

There’s No Legal Limit on Refinancing

Legally speaking, there is no limit to the number of times you can refinance your mortgage. You can refinance your home loan as often as you want.

However, that doesn’t mean the process is without hurdles. Mortgage lenders have requirements you’ll need to meet each time you apply for a refinance. You’ll also want to make sure refinancing makes financial sense for your situation

Here are some key points to keep in mind:

• Lenders often require a waiting period between refinances. Many lenders require you to wait at least 6 months after closing on your most recent mortgage before refinancing again. This is known as a “seasoning requirement.” However, you may be able to find another lender willing to refinance you sooner.

• Multiple refinances can damage your credit score temporarily. Each time you apply for a mortgage refinance the lender will conduct a hard credit check. Too many of these in a short period can cause your score to drop.

• Closing costs add up. You’ll pay closing costs each time you refinance, usually 2-5% of the loan amount. Make sure the savings from a lower rate exceed these fees.

• Prepayment penalties may apply. If your current mortgage has a prepayment penalty, refinancing could be expensive. Always review your loan documents.

• Your financial situation must qualify. If your income, debts, or credit score have worsened since your last refinance, you may no longer qualify for the best rates.

So while you can legally refinance over and over, it’s not always the wisest financial move. Carefully weigh the pros and cons each time.

Refinancing to Lower Your Interest Rate

One of the main reasons people refinance is to get a lower mortgage interest rate. This reduces your monthly payments and overall interest costs.

But how much lower does the rate need to be to justify refinancing? Here are some guidelines:

• 1 percentage point lower: If the new rate is around 1 percentage point lower than your current rate, refinancing may make sense if you plan to stay in the home long enough to recoup closing costs.

• 2 percentage points lower: If the new rate is 2 percentage points lower, refinancing is almost always worthwhile, even if you must pay hefty closing costs. You’ll quickly recoup those fees through interest savings.

• 0.5 percentage points lower: If the rate drop is only half a percentage point, refinancing is harder to justify because of closing costs. Do the math carefully in this scenario.

Run the numbers with a mortgage refinance calculator to see if you’ll truly save money over time by refinancing. Account for upfront fees in the calculation.

Refinancing to Lower Your Monthly Payment

Sometimes the goal in refinancing is reducing your monthly mortgage payment, even if it means paying more interest over the long run.

Here are two ways refinancing can lower your payment:

• Get a longer loan term: Refinancing your 30-year mortgage into a 40-year loan, for example, will shrink your payment. But you’ll pay more total interest.

• Lower your interest rate: As discussed above, scoring a lower rate reduces monthly payments. Make sure the lower rate justifies paying closing costs again.

Before refinancing to lower your payment, be sure you can afford the home long-term. Temporarily reducing payments while increasing overall interest costs only makes sense if the home fits your budget.

Refinancing for Cash-Out

With a cash-out refinance, you borrow more than what you currently owe on your mortgage. The lender pays off your existing loan and hands you the difference in cash.

A cash-out refinance requires good credit and sufficient equity. Lenders also have special requirements:

• Six-month seasoning period: Most lenders make you wait 6 months after your most recent mortgage before approving a cash-out refinance.

• Lower maximum LTV: The maximum loan-to-value ratio may be lower for a cash-out refinance. You’ll need more equity.

• Higher interest rate: Expect to pay 0.25 to 0.5 percentage points more in interest compared to a standard refinance.

• Stricter underwriting: Lenders scrutinize your finances more closely for a cash-out refinance, so your credit score and debt-to-income ratio requirements will be higher.

Run the numbers carefully with a cash-out mortgage refinance calculator to ensure you’ll still come out ahead even with higher costs.

How Closing Costs Add Up with Multiple Refinances

One downside of refinancing your home loan multiple times is paying closing costs over and over. Closing costs typically run 2-5% of the mortgage amount.

For example, if you have a $300,000 mortgage, you can expect to pay $6,000 to $15,000 in closing costs each time you refinance. Here’s a look at common fees:

• Application and underwriting costs
• Appraisal fee
• Credit check fee
• Loan origination or discount points
• Attorney fees
• Title search and insurance
• Survey fee, if required
• Recording fees
• Prepaid interest, property taxes, insurance

Some borrowers roll closing costs into the new loan amount rather than paying upfront. But either way, you’ll pay interest on those fees over the loan repayment period.

Before moving forward with a refinance, use a refinance cost calculator to determine your breakeven point — how long it will take to recoup closing costs through interest savings from the lower rate. If you refinance repeatedly, your breakeven timeline gets pushed further out.

Alternatives to Refinancing

If refinancing no longer makes sense for your financial situation, consider these alternatives:

• Recast your mortgage: Make a lump-sum payment toward your principal balance to lower your monthly payment while keeping the same interest rate and term.

• Take out a home equity loan: These fixed-rate loans allow you to borrow against your home equity. Good option if you need a lump of cash.

• Open a HELOC: A home equity line of credit works like a credit card, offering access to revolving credit. Good for flexibility.

• Use home improvements to lower costs: Energy upgrades like new windows can reduce utility bills.

Key Takeaways

• There is no legal limit on how many times you can refinance your mortgage. But frequent refinancing isn’t always wise.

• To make financial sense, your new interest rate should be noticeably lower than your current rate after factoring in closing costs.

• Each refinance comes with fees that can add up over time and extend your breakeven point.

• Alternatives like mortgage recasting let you adjust your loan without a full refinance.

• Consider all options and run the numbers before refinancing repeatedly. Don’t just refinance on a whim.

Refinancing can provide a valuable financial tool under the right circumstances. But restraint is important. Be selective in when you refinance to maximize the benefits while avoiding unnecessary costs.