When mortgage rates drop, refinancing your loan could save you a lot of money. But what if you’ve already refinanced your home — can you do it again? If so, how often can you refinance your home?
While there’s no legal limit on how many times you can refinance a mortgage, you might face limitations due to loan type, individual lender rules, and the type of refi option. We’ll cover these scenarios and other key considerations to help you determine whether it makes sense to refinance based on your circumstances.
How many times can you refinance your home?
There’s no legal restriction on how many times you can refinance your home. However, depending on the loan type, lender, and refinancing option you choose, you may encounter limits on how often you can refinance.
When you see mortgage rates falling, it’s not a bad idea to learn what factors may have an impact on your ability to refinance. Understanding how many times you can refinance your home could help you take advantage of lower rates.
Here are some time limits based on loan type that may impact how many times you can refinance your home:
- Conventional loan: If you have a conventional loan, which is a mortgage that’s not backed by the government, there are typically no limits on how many times you can refinance, and time restrictions vary by lender.
- Government-backed loan: Loans insured by the government, such as VA or FHA loans, typically come with standard time restrictions. (We’ll cover these in the next section.)
In addition to loan type, you may encounter restrictions if you do a cash-out refinance. Lenders normally require you to wait six months, and you need to have a certain amount of equity in your home.
Finally, if you have borrowed against your home, you might be wondering if you can refinance with a home equity line of credit (HELOC). The answer depends on what your home equity lender says. For example, if you have a HELOC, you might need permission from the lender that issued it to refinance your primary mortgage, according to the Consumer Financial Protection Bureau.
How soon can you refinance a mortgage after getting it?
If you’re looking at current mortgage rates and wondering how soon you can refinance a mortgage after getting it, the short answer is: It depends. The deciding factor is your loan agreement. If your loan terms don’t restrict how often you can refinance, you may be able to apply for refinancing immediately after taking out your mortgage.
However, depending on your loan type, some lenders have seasoning requirements or waiting periods that limit how often you can refinance. For example, as mentioned above, government backed-loans usually come with restrictions on how often you can refinance your home.
Mortgages backed by the U.S. Department of Veterans Affairs (VA) have seasoning requirements that impact how often you can refinance. Typically, VA loans require that you wait 210 days after your first monthly mortgage payment is due.
Loans insured by the Federal Housing Administration (FHA) have a similar waiting period. If you have an FHA loan and want to do an FHA Streamline refinance, you’ll have to wait 210 days after you’ve closed on the loan you want to refinance. Additionally, you have to have made at least six mortgage payments on the loan.
Cash-out refinance loans
When you choose to do a cash-out refinance to withdraw equity out of your home, a waiting period might also apply. For example, if you have a mortgage that’s guaranteed by Fannie Mae, which is one of the largest mortgage purchasers in the country, you might be required to wait six months after you’ve purchased the home before you’re allowed to do a cash-out refinance.
Refinance seasoning requirements by loan type
|VA loans||FHA Streamline refinance||Cash-out refinance for Fannie Mae loans|
210 days after your first mortgage payment is due
210 days after your loan’s closing date
Six months after you purchase the property unless you qualify for an exception
Although the answer depends on a lender’s seasoning requirements, you can typically refinance your mortgage within the first year of purchasing a home.
Is it bad to refinance your home multiple times?
Refinancing can be beneficial, but sometimes refinancing multiple times can be a bad idea. Here are some drawbacks to consider when deciding how often you want to refinance your mortgage.
A “no-cost mortgage refinancing” doesn’t necessarily mean your closing costs are waived. To cover the cost of issuing you a new loan, a lender may roll your closing costs into the loan or charge you a higher interest rate.
When you refinance, you’ll likely have to pay closing costs each time. Although the amount you pay varies based on the size of the loan and your location, average closing costs are $5,000, according to Freddie Mac. Closing fees might include appraisal fees, underwriting fees, attorney fees, and more.
If you plan on moving soon, it might not make sense to refinance. That’s because you have to remain in your home a while to recover your closing costs. For example, let’s say you’re doing a traditional refinance (not cash-out) to lower your rate and the new loan term won’t be shorter than your current one. If your closing costs are above $6,500 and you’ll be saving $150 a month in interest, you’d have to stay in your home more than 43 months ($6,500 / $150) to recover your closing costs. If you move from your home sooner than 43 months, the cost of refinancing will have outweighed the benefits.
Use a refinance calculator to see if it makes sense based on your unique circumstances.
More interest expenses
If you do reduce your monthly payments through a refi, then you need to see what your new loan terms and loan balance will be. Are you refinancing a mortgage and increasing the term? In other words, is your current mortgage 20 years and you plan on refinancing to a 30-year mortgage?
Although your monthly mortgage payment will drop with a longer term, the downside is you’ll pay more in interest over the life of the loan.
Loss of home equity
Equity represents the portion of your home that you own. For example, if your current mortgage balance is $100,000 and your home is worth $200,000, you have 50% equity in your home. When you refinance, you retain your equity, but it can go up or down, depending upon the option you choose.
If you choose a cash-out refinance, you’ll reduce the amount of equity in your home. With this option, you “cash-out” the equity you built up. You can choose to spend the cash however you please, but some purposes may be better than others.
For example, using the cash for a home improvement project could increase the equity in your home. But using the funds to cover an expense outside of your home will leave you with less equity in your primary asset. If the housing market declined and the value of your home fell, you could end up owing more on your house than it’s worth.
When should you refinance your home?
Learning when it’s possible to refinance your home is important, but it’s more important to understand when it’s a good time to refinance. Here are some scenarios when it might make sense to refinance multiple times:
You’ll recoup the cost of refinancing
If your plan is to stay in your home long enough to recoup the upfront cost of refinancing, it could be a good idea. Imagine that you refinanced five years ago and have already recouped your closing costs. Then you discover that mortgage rates have dropped an average of two percentage points since you refinanced. If you qualify for a lower rate, it might make sense to refinance again. Just remember that you’ll have to stay in the home long enough to recover the cost of refinancing your home again.
You’ll avoid foreclosure by extending your loan term
When the unexpected happens, it may be beneficial to tap your mortgage equity for help. An emergency medical expense or layoff can reduce the amount of cash you have to cover your mortgage. As a result, you may no longer be able to afford your loan. If that’s the case, one potential solution is to refinance to a longer term to make your monthly payments more affordable.
Although this will increase the amount of interest you pay over the life of the loan, it could save your home from foreclosure. When you get back on your feet, you can make additional payments to make up the difference.
You’ll get rid of PMI payments
Another good reason to refinance is to eliminate private mortgage insurance (PMI) payments if your home experiences a rapid increase in value. For example, let’s say you purchased a home three years ago and your home’s value has increased 30%. If this causes the equity in your home to be 20% or greater, refinancing could help you get rid of PMI and lower your monthly payments.
When choosing to refinance to remove PMI, be sure to crunch the numbers. It might make sense to refinance for this reason if doing so allows you to get a lower interest rate and you plan on staying in your home long enough to recover the refi closing costs.
Trying to decide whether now is a good time to refinance? Talk to a local Finance of America Mortgage Advisor today to learn more about your options.