How Often Can You Refinance Your Home?
The COVID-19 Pandemic has impacted and produced historic years for the mortgage industry. According to Freddie Mac, the average 30-year, fixed-rate loan remains below 3% — some of the lowest levels in history. Such favorable rates are opening the door for many renters to get into homes of their own for the first time.
Of course, these low rates have also led to plenty of refinances. A mortgage refinance can save you thousands of dollars over the life of your loan, allowing you to keep more money in your pocket every month. Whether you’re looking to take advantage of lower rates or shorten your loan term, a refinance could be a sensible option.
But what if you just recently bought a house, or already refinanced in the past? Are there rules that prevent you from refinancing again? Keep reading as we discuss how often you can refinance your home.
It depends on your loan
There’s no limit on the number of times you can refinance your mortgage. If it makes sense to refinance five different times, go for it. Just be sure to work with a reliable lender each time, as refinancing typically involves resetting your term.
So what are the rules about when you can refinance your home? In short, it depends on the kind of loan you have. Conventional loans, such as a 15- or 30-year mortgage, have no waiting period to refinance. This means you could technically refinance immediately after closing.
Things are a bit different with government-backed loans, such as the FHA or VA loan. If you used one of these programs to finance your home, you must wait six months after your existing mortgage closed before being eligible to refinance. It’s worth noting that some lenders enforce a six-month waiting period regardless of the kind of loan.
When to refinance your mortgage
Now that you have a better idea of how often you can refinance your mortgage, let’s take a closer look at the reasons for refinancing.
Benefit from a lower rate
Let’s say you closed on your home in the summer of 2019 and settled for a 4% interest rate. Fast forward one year later and you see that rates are more than a percentage point lower. Even though you’ve only been in your home for a year, you may want to consider a refinance.
Imagine saving hundreds each month simply by refinancing your mortgage. You can use the extra funds to pay down high-interest debt, build up a savings account, or cover the costs of a future home improvement project. Believe it or not, lowering your rate by a fraction of a percentage could provide much-needed financial relief.
Eliminate mortgage insurance
Think back to the day you closed on your home. If you put less than 20% down on a conventional loan, you were required to buy private mortgage insurance. PMI serves as protection for your lender in the event that you default on your mortgage.
It’s possible to get rid of PMI for good once you reach 20% equity in your home. Between a lower rate and no mortgage insurance, your monthly savings will be even greater. You may also see what it takes to switch from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage.
Change your repayment schedule
Maybe you don’t want a mortgage for another 20 or 25 years. A 15-year mortgage makes a great option for those wanting to pay off their home as quickly as possible. Refinancing into a shorter-term allows you to put more of your mortgage payment toward the principal and less toward interest.
Is it the right choice for you?
Unfortunately, refinancing your mortgage is going to cost you. According to ValuePenguin, the average cost of a mortgage refinance in the U.S. is $4,300. Borrowers are on the hook for application fees, appraisal fees, inspection fees, and title insurance, among other expenses. Though pending your loan program and financial health, you may be able to roll those costs into your loan.
Regardless, it’s always important to weigh the potential savings against upfront costs when it comes to refinancing. If you see your current residence as a starter home and plan to move in several years, it may not be the best move to get into a new loan. On the other hand, if you intend to stay put for a while and could benefit from more favorable loan terms, refinancing could be a wise decision.
Don’t make the mistake of going through this process alone! An experienced lender will have various refinance options available, including a cash-out refinance, which allows borrowers to convert their equity to cash.