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How often can you refinance your home

Oct 12, 2021

With today’s historically low interest rates, a growing number of homeowners are refinancing. A mortgage refinance is a great way to reduce your monthly payment while also potentially saving thousands of dollars in interest.
But what if you refinanced not too long ago? Wondering how often you can refinance your home? While there are no rules that restrict how often you refinance, doing so multiple times can be expensive and could have unintended consequences.
Here’s what you need to know so that you can plan accordingly.


Refinancing rules

As mentioned earlier, there are no restrictions on the amount of time you can refinance your mortgage. As long as you meet the eligibility requirement for the lender you choose, you could technically refinance every month if you wanted.
However, each time you refinance, you’ll have to pay closing costs. These fees can range anywhere from 2% to 6% of the loan amount.
While you’re free to refinance as often as you’d like, some lenders have a “seasoning” requirement. This is a timeframe that says how long you should wait before refinancing.


Why homeowners refinance more than once

There are many reasons why a homeowner may decide to refinance multiple times. Why and when people refinance is highly dependent on their goals and financial circumstances.

Here are some of the top reasons why people refinance their home:

  • Tap into home equity.
    A cash-out refinance lets you tap into your home equity. These funds can be used for home improvement projects, to plan a dream vacation, or to pay for college tuition.
  • Lower interest rate.
    If you’re making more than you were when you first bought your home, refinancing into a shorter-term mortgage can save you thousands in interest costs. While your monthly payments will increase, you’ll save money over the life of the loan.
  • Reduce monthly payment.
    Locking in a lower mortgage rate and refinancing into a longer-term low will reduce your monthly payment. For example, you could switch from a 15-year to a 30-year mortgage.
  • Remove private mortgage insurance.
    Private mortgage insurance (PMI) typically costs hundreds of dollars each month. If your home has 20% equity, you may be able to refinance into a conventional loan and get rid of private mortgage insurance.


There are many perks to refinancing, including short- and long-term savings.


Why refinancing too often can be problematic

A mortgage refinance is much more than signing documents and potentially switching lenders. While refinancing your home can save you money each month, there are some pitfalls to be aware of.


Higher interest expenses

While you may qualify for a significantly lower interest rate with a refi, you may still pay more over the life of the loan. This is especially true if you extend the repayment term.

Consider this scenario. You’ve been paying your current 30-year mortgage for 10 years. With refinancing, you decide to extend the loan back to a new 30-year term.

Though your monthly mortgage will be lower, starting over with a new loan means that you’ll pay more interest. However, if you sell your home sooner rather than later, you’ll still come out on top.


Closing costs canceling out savings

Refinancing means paying another set of closing costs. In some instances, these costs may cancel out the benefits of a refinance.
Before refinancing, make sure that you’ll save money over time while also recovering your refinance costs. Start by calculating your break-even point. Ideally, you want to remain in the home until you reach the break-even point.


Slower equity gains

If you refinance multiple times and extend the loan term with each one, your home equity builds at a much slower pace. During the first few years of repaying your mortgage, more of your payment goes towards interest than the principal balance.
It’s also important to note that the housing market is ever-changing. There’s always the risk that your home’s value could fall below your outstanding mortgage balance. Selling your home while underwater means you won’t make a profit, and you may have to come out of pocket.


Final thoughts

How often you refinance your home is dependent on your own goals and financial situation. Consider how expensive refinancing is upfront and over time to ensure that you're making a sound decision.
Thinking of refinancing? Want to make sure it makes sense to do so? Contact our team at Diamond Residential Mortgage Corporation to discuss your needs and let us match you with the right program best suited to meet your needs.

 


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