What You’ll Learn
There’s no limit on the number of times you can refinance
What you should consider before refinancing multiple times
How to decide if this is an ideal time to refinance
Refinancing your mortgage can be an effective money-saving strategy, and there’s technically no limit on the number of times you can refinance—but that doesn’t mean you should be rushing to refinance on a regular basis. Each refinance comes with a unique set of pros and cons, and you need to be sure that the savings you stand to gain from your new loan outweigh the upfront costs involved with refinancing. Even if it’s not your first refinance rodeo, you should still do your due diligence in measuring the upfront costs against the long-term benefits before you saddle yourself to new debt.
If you need to refresh your refinance IQ, you can check out our step-by-step refinance guide or common refinancing myths. Otherwise, let’s cover some of the basic questions about repeat refinancing: how often can you do it, and how do you decide if it’s a sound financial decision?
What are the main refinance requirements?
First things first—are you even qualified to refinance? Just like when you originally worked with a lender to buy your home, you’ll need to go through an approval process to refinance the terms of your mortgage. This involves many of the same steps as your original financing experience (minus the house hunt) like sharing financial documentation with your lender.
You’ll also need to meet some basic minimum requirements to be eligible for refinancing. For conventional loans this typically means a credit score of at least 620 and a DTI (debt-to-income) ratio no higher than 43%. On top of that, you’ll likely need at least 5% equity in your home. If your LTV (loan-to-value) ratio is less than 20%, you may not be able to qualify for quite as competitive interest rates, and you may have to pay mortgage insurance to offset the additional risk of your refinance. To get a more detailed breakdown of documentation and refinance requirements, review this checklist.
How many times can you refinance your mortgage?
As we said, there’s no official limit to the number of times you can refinance your mortgage. But there are typically rules around when you are eligible for a refinance and how frequently this process can take place.
Lenders often have “seasoning” guidelines in place, which are black-out periods for how soon you can refinance your mortgage after buying a home, as well as how soon you can refinance after refinancing. These guidelines aim to discourage “flipping” homes (homes that are purchased, renovated quickly, and sold as fast as possible) and encourage borrowers to establish a stable payment history.
As always, refinancing depends on your unique situation—your loan terms, your lender, and the type of home loan you have and plan to get.
It depends on your current loan
If you have a conventional mortgage, there are typically no restrictions between when that mortgage was closed and when you can refinance as long as you’re not taking cash out.
Government-backed loans (e.g., FHA, VA, and USDA) impose a refinance waiting period between six and seven months, depending on the loan issuer. Additionally, borrowers must make payments on time for at least three months, and there must be a demonstrated benefit to the refinance (usually a minimum of 0.5% reduction in interest rate).
It depends on your current lender
While some lenders require seasoning periods (six months is common), you may be able to refinance using a different lender, as long as you qualify for the loan’s standard underwriting requirements.
It depends on the type of refinance
Your refinancing goals can also dictate how often you’re eligible to refinance your mortgage. For example, cash-out refinances, where you access cash by tapping into your home equity, require a 6-month waiting period before you can refinance again. And because taking cash out depends on how much equity you have built up over time, these types of refinances tend to happen less frequently.
As a refresher: Your equity is the difference between the value of your home and the amount you still owe on your mortgage. You can determine your percentage of equity by dividing your equity by the value of your home. Most lenders require you to have at least 20% equity in your home to be eligible for a cash-out refinance. This helps discourage borrowers from getting into a risky situation where they are overly saddled with mortgage debt.
Rate and term refinances are slightly different. In this scenario, you are just reducing your rate and resetting the loan term, and you can apply for these kinds of refinances without any waiting periods. In a volatile market, interest rates can sometimes drop quickly. Taking advantage of these rate decreases can mean paying thousands of dollars less in interest over time. Just be sure you factor in the upfront costs and get a sense of your breakeven point before committing to a new loan term.
What to consider if you plan to refinance again
Your credit will be impacted
When you refinance, lenders must process a “hard credit pull” to verify your credit score. Hard inquiries may impact your score for up to a year for an average drop of five to ten points. If you’re trying to maintain a certain credit score to meet a lender refinance requirement, or if your credit score already prevents you from qualifying for a competitive interest rate, you may want to wait until your credit score or financial circumstances have improved.
If you’re thinking about refinancing twice within a 12-month period, you’ll want to ensure that your credit score is in good enough shape to withstand another minor dip when you apply for your next refinance.
Keep in mind, when shopping for lenders and rates, as long as all potential lenders pull your credit within the same two- to four-week period, the hard inquiry will only count once on your score.With Better Mortgage, you can see what rates you qualify for in minutes and with only a soft credit check, which won’t impact your score. The hard credit check happens once you’re ready to lock your rate.
Refinance savings should outweigh costs
Refinancing only makes sense if you plan to live in your home long enough to enjoy the financial benefits. . . That means you’ll need to determine the break-even point of your refinance by calculating how long it will take to offset your initial investment and start reaping the rewards of refinancing.
Every home loan includes closing costs, which are usually around 2-5% of your loan balance. If you plan to refinance again or sell your home before you realize the savings, then a refinance will, ultimately, cost you money—not help you save it.
Even if you choose a no-cost refi option, where out-of-pocket costs are rolled into your loan, you’ll still want to consider the impact of their additional expense. Note that no-cost refinances do not mean your closing costs are non-existent; instead, they’ll be applied to your loan balance and thus incur interest.
Our break-even refinance calculator can help you discover how quickly you’d recoup any closing costs and fees on a new refinance.
Keep in mind, closing costs include fees for third-party services, such as the appraisal, title search and insurance, and credit report. Many lenders also charge loan origination, application, and underwriting fees but you can avoid those kinds of costs by working with Better Mortgage. We’ve built technology to streamline the entire mortgage process from start to finish, making it less expensive to generate your loan. Naturally, we pass on the dollar and time savings on to you.
You may get charged a prepayment penalty
Some mortgages come with prepayment fees for paying off your mortgage ahead of schedule. This is a fee charged if you pay the loan before the prepayment period has passed by paying off in cash or refinancing with a new loan. You’ll want to check your current mortgage terms to ensure there’s no mention of a prepayment penalty.
If there is a penalty, you should add the fee to the cost of the refinance to make sure paying it early is worth the expense.
Is now the right time to refinance again?
General wisdom says you shouldn’t base your home financing decisions on “timing the market”—there are tons of external factors that can influence rates, and there’s no realistic way to effectively anticipate all the variables at play. The primary factor in determining whether you should refinance your home should always be your present financial needs. Common scenarios may include:
If you need access to cash
A cash-out refinance could be just the ticket if you need to fund a major expense, such as a home renovation or debt consolidation.
If you have enough equity in your home, you’ll be able to take out a new mortgage in excess of what you owe—and you’ll receive the difference in cash.
If your credit score drastically improved
Perhaps you paid off some major debt, which shot your credit score to new heights.
If your credit has improved significantly since the last time you refinanced, then you may be able to qualify for a better rate. Locking in a more competitive rate can help reduce the cost of your monthly mortgage payment and save you thousands of dollars over the life of your loan.
If you need more room in your monthly budget
If other monthly expenses have piled up, and you need more space in your budget, then refinancing can help alleviate the burden of a high monthly payment. A rate-and-term refinance can offer the opportunity to decrease the amount you owe each month through a lower interest rate, extended loan term, or both.
Whenever you refinance, you hit “reset” on the length of time you will be paying your mortgage and interest. For example, if you are five years into paying off your current 30-year mortgage and you refinance to a new 30-year term, you’re essentially adding five more years of payments to your debt timeline.
This might not seem like a smart move at first, but again, it depends on your financial needs and goals.In this case, there are pros and cons. By extending the remaining balance of your mortgage over a longer time frame, you can reduce your monthly payment amount.
So if freeing up cash in your monthly budget for bills or other expenses is a priority, refinancing can help you achieve that goal.
If interest rates have dropped and you can save on your monthly payments
Interest rates are influenced by things like economic uncertainty, recession, or changes in monetary policy by the Fed. That means they are constantly fluctuating and hard to predict. How are you supposed to know when a dip in rates is worth refinancing? The truth is that everyone will have a different threshold in what qualifies as worthwhile—for some a savings of even 1% might be enough. If you’re refi-curious, ask yourself what your personal threshold is and be on the lookout for telltale signs that interest rates might be about to swing downwards. Being ready to pull the trigger can help you pounce on an opportunity.
Ready to refinance?
If you’re interested in lowering your interest rate, shortening your loan term, or tapping into home equity for cash, refinancing could help you unlock your financial goals.. Whether this is your first time refinancing or you’ve done it before, Better Mortgage offers competitive rates, zero lender fees, and a streamlined online process that helps you find the best loan options possible.
Get started to find out how much money you can save by refinancing.