There is no limit to how many times you can refinance your mortgage. Most borrowers are allowed to refinance their home as many times as they want. However, there comes a point when the refinancing cost will outshine any benefits to doing so.
Knowing when is the right time for you to refinance and if you can refinance is the real catch though. In this article, we will help you sort out what can be a good time for you to refinance but more importantly, how often can you refinance if you decide it’s the right move.
How Often Can You Refinance A Mortgage?
With today’s low mortgage rates, it makes sense that you want to refinance your mortgage and lock in a lower interest rate. As it can save you tons of money over the life of your loan. But what if you just recently bought your house or you have refinanced it already this year? There is one question that you must be wondering, how many times can I refinance my mortgage? Is there any limit to it?
Luckily, you can refinance your mortgage as often as you want. There are no rules or regulations that prevent you from refinancing into a loan with lower interest rate or shorter mortgage term.
However, refinancing again might be more of an inconvenience for the lender than for you. This is why some lenders have “prepayment penalties” clauses in their mortgage contracts. Prepayment penalties are the fees that some lenders charge you for paying off your mortgage loans early. So, it is important to figure out if you have any prepayment penalties in your mortgage contract or not. And in case there is such a clause in your contract, find out if there is any way out of it.
When Does It Make Sense To Refinance Again?
There are typically two major reasons for homeowners behind refinancing a mortgage loan: locking in a lower interest rate, or getting a shorter mortgage term. Usually homeowners consider refinancing when there is a significant drop in interest rates, or when their credit score increases notably.
If you are wondering whether it makes sense for you to refinance your property for the second, or third, or fourth time, find out if it will accomplish the following financial goals or not
Save Money with Significant Lower Interest Rates
The first thing that you should consider before deciding to refinance is whether the interest rate on your new mortgage is significantly lower than your previous loan or not. If there is no big difference in the interest rates, then you should probably wait a little longer for market interest rates to go further down.
Recent trends show that interest rates are at their historic lows. A lot of homeowners are taking advantage of it. But how low of an interest rate you can expect to pay is based on various factors like your credit score, the amount of your mortgage loan, and your lender.
Remember, that dropping your mortgage by just 1% could save you more than $100 per month on your monthly mortgage payments.
Closing Costs Don’t Dominate Your Potential Savings
Just like your original mortgage, refinance mortgages have a closing cost as well. These closing costs typically run form 2% to 5% of the cost of your loan. The exact amount that you will have to pay ultimately depends on your lender and the amount of money that you have borrowed.
To figure out if the closing costs don’t surpass your potential savings from the refinance, all you have to do is divide your closing costs with your monthly savings. For example, if the closing costs for your refinance are around $2500, and your monthly savings are $300. It will take you around 8-9 months to break even after closing your refinance deal. After that, you can enjoy a savings of $300 every month till the end of your mortgage term.
The key here is whether you will be around for long enough to realize the savings or not. If you don’t plan to stick with your new mortgage this long, then it does not make sense to refinance.
Changing to a Desirable Mortgage Term
The important thing to consider before deciding on a refinance is realizing what your financial goal is behind this refinance. It is possible that some homeowners have a different desired outcome such as a shorter mortgage term rather than a lower interest rate.
Different mortgages come with different mortgage terms and ultimately determine your monthly payments and the overall principal you will be paying on your mortgage. A 30-year mortgage term will decrease your monthly payments but will increase the overall interest rate on your mortgage. Similarly, a 15-year mortgage will increase your monthly payments but will decrease the interest rate on your mortgage. You should choose a mortgage term that is best suitable for your financial situation.
Things to Consider before Refinancing
Here are some factors that affect how soon you can refinance your mortgage. You might want to consider these before making a decision.
When you refinance your mortgage, you do so on the basis of the equity you have accumulated. Equity is calculated by subtracting the amount owed from the value of the home. With each monthly mortgage payment, your equity grows.
Apart from paying the total purchase amount, the closing costs can really add up a hefty amount to your total payable sum. Generally closing costs average 2% to 5% of the refinance value. You may also have to pay a higher interest rate if you recently bought your home or want to refinance a short-term mortgage loan.
If your mortgage contract includes a prepayment clause then it is most probable that refinancing your mortgage will not save you much money. Apart from paying the penalty fees, you will also have to pay for other costs as well that are associated with an application for a new loan.
If you want to apply for a refinance, try to make your credit score as good as possible. A good credit score will surely increase your chance of getting approved for a refinance even with an average equity value.
How Soon Can You Refinance A House
To find out, when you can refinance your property depends on the kind of loan you have.
Many conventional mortgage loans do not require a waiting period to refinance. Especially, if you are refinancing to get a lower interest rate or a different mortgage term.
However, if you have government backed loans like FHA or VA loans, it requires you to wait at least six months to refinance again after closing your previous mortgage deal.
Apart from this, it also varies from lender to lender, some lenders make you wait at least six months before you can refinance again regardless of the type of loan you have.
Similarly, a cash-out refinance loan requires that the borrower have owned the said property at least six months before the refinance.
The Bottom Line
Refinancing really helps in saving money for almost all of the homeowners. However, knowing when to refinance is the real catch here. Make sure that you evaluate all of the above mentioned factors before you make any final decision. As long as you have clear financial goals behind a refinance, it will really benefit you and will serve the purpose.
However, remember that all of this is just information, and the next real step is to talk to a lender to find out where you stand with your current mortgage situation. Affiliated Mortgage, provides some of the best mortgage deals when it comes to refinance.
Contact us now to find out today’s low mortgage rates.
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