Once you have a mortgage, you aren’t stuck with it forever. If a better rate comes along or you want to tap into your home’s equity, you may be able to refinance. Just how often can you refinance? It depends on the situation.
Technically, you can refinance as much as you want. The real question is whether or not it makes sense to do so. You may also have to meet certain lender requirements in order to refinance often, such as seasoning requirements.
We’ll discuss each of these factors below.
How Long Should you Wait to Refinance?
Just how long you should wait to refinance depends on the mortgage program. Some mortgage programs, especially cash-out mortgages, require you to have six months of seasoning. In other words, you must have your current mortgage for at least six months before you can refinance. This isn’t the case for every refinance, though.
If the mortgage program doesn’t require a specific seasoning period, you should determine what makes sense for you. Keep in mind that each time you refinance that you pay closing costs. You also restart your loan’s term. If you keep refinancing, you’ll never get ahead on your term, continually extending how long it takes you to own your home free and clear.
Is it Bad to Refinance Your Home Multiple Times?
As we stated above, you will pay closing costs every time you refinance your mortgage. The closing costs can be as much as 5% of your loan amount. On a $100,000 loan, this means $5,000. If you refinance multiple times, you pay the closing costs repeatedly. This can take away from the benefit of refinancing.
You also have to think about the loan’s term. When you refinance, do you take the same term or do you shorten it? For example, if you currently have a 30-year term that you’ve made payments on for five years and then you refinance it into another 30-year term, you just erased those five years. It will not take you another 30 years to pay off your mortgage. If you keep doing this, it could be hard to ever own your home free and clear.
Does this mean that it’s wrong to refinance your home multiple times? It doesn’t. There are reasons that homeowners find to refinance more than once. For example, if you refinance one time to take cash out of your home’s equity and then you refinance again in the near future to lower the loan’s interest rate, you benefit from the refinance.
What is a Break-Even Point?
When you think about refinancing, you should know your break-even point. This is the point that you will make up for the closing costs. Let’s say, for example, that your closing costs are $7,000. Let’s also say that you’ll save $100 a month by refinancing. Your break-even point would be:
$7,000/$100 = 70 months
Your break-even point is the total amount of your closing costs divided by the monthly savings. In this case, it would take 70 months to recoup the closing costs. If you won’t be in the home longer than 70 months, it may not make sense to refinance.
Is it Worth it to Refinance?
Now that you know what it costs to refinance and that you may reset your loan’s term, is it really worth it to refinance?
Just because you can refinance doesn’t mean it makes sense to do so. Even if you will save money each month, it may not benefit you in the long run. You have to look at the big picture. We already discussed looking at the break-even point, but you have to look at the bottom line too.
How much will the new loan cost you over the entire term? Will you save money in the end? If you add years to your term, how much interest will that cost you? Just because you save money each month, it doesn’t mean that you’ll save money in the long run.
The truth of the matter is that you can refinance as much as you want, but it probably doesn’t make sense to do so. If you refinance once or twice, that is more than enough. At some point, you should keep your mortgage and focus on paying it off completely. Of course, there are always exceptions to the rule and reasons that you need to refinance multiple times, but in general, it makes sense to focus on paying off your mortgage rather than continually refinancing it.