How Often Can You Refinance?

Have you questioned, “How many times can I refinance my home?” The short answer is that you can refinance your loan as many times as it makes sense for you to do so. But what does that mean? You are always considering refinancing your mortgage for a reason.

Understanding how your reason for wanting to refinance stacks up against the benefits and costs of doing so should be your driving force in moving forward with a refinance.

We will explore typical scenarios that homeowners think of refinancing in and how you can make an educated decision in each of those.

Take Advantage of Lower Interest Rates

With the current market outlook, this is probably the most common reason people are looking into their refinancing options. And with good reason! If you can lower your rate without changing any other terms of your loan, you could save big on how much interest you’ll pay over the life of the loan.

Even what seems like a small change in your interest rate can save you thousands over the term of your mortgage. Take, for example, a 30-year fixed-rate loan of $200,000 at an interest rate of 4%. You would pay $143,739.01 in interest over the life of that loan. If your refinance reduces the rate to 3.75%, you will save $10,295.78. Go down to 3.5%, and you’re up to $20,426.83 in savings!

For you to actually save money over the long-term in this scenario, your loan term (how long you’re financing for) must stay the same. If you opt for a longer term, you will start to increase your interest amount.

Extend Your Loan Term for Lower Monthly Payments

Another common scenario is a change in your income or other circumstance that prompts a need to lower your monthly mortgage payment. One potential solution for this may be refinancing and extending the length of your loan.

While this is likely to increase the amount of interest you pay over the course of the mortgage, the more important factor in this situation is maintaining your ability to meet your mortgage payments. You don’t want to go into foreclosure or even have late payments on your credit report. So, taking immediate action to bring your payment amount into a manageable range given your current finances is the best decision here.

Looking to the future, you’ll have the opportunity to refinance later should your situation change, and you have the ability to make a higher monthly payment and reduce your loan term.

Save Money by Cancelling Private Mortgage Insurance

If you put down less than 20% when you purchased your home, you probably have private mortgage insurance, or “PMI.”

Once you reach 20% equity in your home, you can refinance to a conventional loan and remove PMI from your monthly payment. You can calculate your equity by adding up all the loans secured by your house and subtracting that from your home’s current appraisal value. If we revisit the same $200,000 loan example from earlier and imagine you’ve paid $42,000 towards the principal, you would be at 21% equity.

Being over the 20% threshold puts you on track to get rid of PMI, saving you money on that monthly premium.

Don’t I Have to Pay Closing Costs Again?

There are usually closing costs associated with a new loan, even if that loan is a refinance. But don’t let that stop you from checking into offers.

Some loan programs offer rates a little higher than their best rate that bear no closing costs. For example, a lender might offer you their lowest rate of 2.75% with closing costs or another option of 3.15% with no closing costs. Of course, the higher rate yields more interest paid, so you’ll have to weigh the importance of paying fees upfront versus paying over your loan term.

Will I Get Hit with a Prepayment Penalty?

Prepayment penalties will depend on your current loan’s terms. This penalty is a clause included in some mortgages that charges you for paying off your loan before the full term.

Just like the other scenarios we’ve explored; you’ll want to do your research and see just how much any penalty might cost you and compare that to your potential refinance savings. With market changes and aggressive rates, you might still save money despite a penalty.

As you consider refinancing your home and work out the calculations on what is best for your financial situation, remember that you don’t have to be your own expert. Our Loan Officers are up on market trends and are here to gain an understanding of your circumstance and provide you options to make the best and most informed decision.

Get in touch with one of our Loan Officers to explore the best fit for you.