How Often Can You Refinance Your Home?

Homeowners who build equity in their property can choose to tap into that value through a refinance. But if you’ve already refinanced your home once, you might wonder how often you can refinance in the future.

Legally, there isn’t a limit on how many times you can refinance your home loan. However, mortgage lenders do have a few mortgage refinance requirements you’ll need to meet each time you apply for a loan, and some special considerations are important to note if you want a cash-out refinance.

How Does Equity Affect When You Can Refinance?

You need to have equity built up in your home to take cash out against it. You might have less equity in your home than you think if you’ve opted for a cash-out refinance in the past.

Every time you tap into your equity, you reduce the percentage of your home loan that’s available for you to use. Most lenders won’t allow you to take out 100% on most loans. In general, lenders prefer you to keep at least 10% – 20% in equity if you’re refinancing a home loan. Since every situation is different, you’ll need to do some math and figure out exactly how much equity you have before refinancing.

Cash-Out Refinance Example

Imagine paying off $50,000 of your home loan and having a remaining principal balance of $300,000 on your mortgage. Now, let’s suppose you want to do $30,000 worth of repairs, so you opt for a cash-out refinance. Your new loan principal is $330,000 after taking away $30,000.

Fast forward 2 years, and you now need $20,000 to pay off some debt. In the years since your refinance, you’ve paid only $2,000 off your principal after accounting for interest.

Although your loan balance is now $328,000, you only have $22,000 worth of equity in your home. Most lenders let borrowers only refinance 80% – 90% of their loan value.

In this scenario, if you take out $20,000 in a cash-out refinance, you’ll be removing over 90% of your home equity. If this is your plan, you’ll likely have trouble finding a lender willing to originate your refinance. The exception is if you have a VA loan where you can cash out up to the full amount of your equity.

If you do find a lender that’s willing to let you use over 90% of your equity on a non-VA loan, you probably won’t get the best possible interest rate. As a result, you’ll likely pay thousands of dollars more in interest by the time you pay off your home loan.

How Soon Can You Refinance A Home Loan?

How quickly you can jump into a refinance varies based on your mortgage type. Here’s the breakdown:

• FHA loans: An FHA streamline refinance is available 210 days after your original closing date. For an FHA cash-out refinance, you’ll need to wait at least 6 months from your first payment date.
• VA loans: A VA loan refinance is available 210 days after your first mortgage payment.
• Conventional loans: Most lenders require a 6-month seasoning period before you can proceed with a refinance.

Should You Refinance Your Mortgage More Than Once?

Although you can refinance your mortgage multiple times, that doesn’t always mean that you should. The following situations highlight when multiple refinances could be a good move.

If You Want To Obtain A Lower Interest Rate

Depending on the market conditions, you may be able to refinance to take advantage of a lower interest rate. You can almost always save money if you’re able to lower your interest rate without changing the term of your loan.

A small change in your interest rate can save you hundreds, or even thousands, of dollars. For example, perhaps you currently have a 30-year mortgage loan with $150,000 left on your principal and an interest rate of 7%.

You may take the opportunity to refinance your loan with the same terms if the interest rate drops to 6.5%. If you don’t refinance, you pay $209,263 in interest by the time your loan matures. If you take the refinance, you pay $191,317 total in interest. Lowering your interest rate by just 0.5% means you’ll save $17,946 in interest over the life of the loan.

If You Want To Change Your Loan Term

Income changes can happen at a moment’s notice. If your income has increased, you may want to refinance to a shorter loan term – maybe from a 30-year to a 15-year term – so you can pay your mortgage off earlier. If your income has decreased, you may want to refinance into another 30-year term to lower your monthly mortgage payment.

Remember that every time you refinance your loan to a longer term, you increase the amount you pay in interest over the life of the loan.

If You Want To Eliminate PMI Or Your Mortgage Insurance Premium

If you bought a home using a conventional loan and made a down payment of less than 20%, you likely have private mortgage insurance (PMI) premiums attached to your monthly payment.

PMI is a special type of insurance that protects your lender if you default on your loan. PMI offers you no protection as the homeowner. However, you still have to pay the recurring premiums as a condition of your loan. When you reach the 20% home equity threshold on a conventional loan, you can ask your lender to cancel PMI if they haven’t done so automatically.

You may also want to refinance from an FHA loan to a conventional loan when you reach 20% equity. With a Federal Housing Administration (FHA) loan, you must pay an FHA mortgage insurance premium throughout the duration of the loan if you make a down payment of less than 10%. However, if you refinance from an FHA loan to a conventional loan, you won't have to pay for your lender’s insurance as long as you have at least 20% equity in your home.

If You Want To Pull Cash Out Of Your Home Equity

If you have a big purchase to make or other debts to consolidate, pulling cash out of your home equity could help you cover the costs. For example, expensive home renovations or the cost of a major life event could be enough of a reason to tap into your home equity to cover these costs.

If You Want To Lower Your Monthly Payment

If you’re having trouble keeping up with your monthly payments, refinancing your loan could offer the breathing room you need. Generally, you can tap into a lower payment through a longer loan term, lower interest rate or both.

Factors To Consider When Refinancing Multiple Times

Refinancing more than once isn’t for everyone, even if the benefits seem universally attractive. Here are a few items to weigh before refinancing your mortgage again.

You’ll Need To Pay Closing Costs Again

Unless you opt for a no-closing-cost refinance, you’ll need to pay closing costs every time you refinance. Common closing costs include:

Application fees: Your lender might charge you an application fee when you request a refinance. You’ll need to pay your application fee whether or not you actually complete the refinance process.

Appraisal fees: Even if you’ve had a refinance appraisal before, your lender might require another one before you refinance again. This process ensures the lender isn’t loaning out more than the home is currently worth.

Inspection fees: You might need to get an inspection before you can refinance. Some states require certain types of inspections each time you refinance, while others only require inspections every 5 – 10 years.

Attorney review fees and closing fees: In some states, you’ll need a real estate attorney to finalize your loan and review it before closing. Attorneys’ fees can vary significantly from state to state.

Title search and insurance: When you refinance with a new lender, they need to know you’re the only one who has rights to your property. Expect to pay title insurance and search fees again (even if you’ve recently refinanced) when you apply for a new home loan. However, you won’t need a new owner’s title policy.

Closing costs vary by location, but you can usually expect to pay around 3% – 6% of your total loan amount. This can quickly cut into any money you’re saving – especially if this isn’t your first refinance.

You’ll Need to Meet Your Lender’s Credit Standards

Just like when you buy a home, you must meet your lender’s standards when you refinance. Have more debt, less income or a lower credit score now than when you last refinanced? You may have difficulty getting approved or being offered a better interest rate. Know your debt-to-income ratio (DTI), current equity and credit score before you apply.

You Might Face Prepayment Penalties

While Rocket Mortgage^® doesn’t have a prepayment penalty, some lenders include clauses that penalize you if you pay off your loan before your term ends. For example, you may need to pay anything you saved in interest if you pay your loan off within the first 5 years of your term.

This can create a problem if you’ve already had one refinance and reset your loan’s term. Before you apply for a new refinance, read through the terms of your last refinance and see if your loan has an early repayment penalty.

Your Credit Score Might Suffer

Refinancing your home more than one can impact your credit score because each refinance involves taking out a new loan. Initially, you may see a dip in your credit score due to the hard inquiry and the new debt on your report. However, most borrowers find that their credit score recovers or even improves after a few months of consistent, on-time payments.

The Bottom Line: You Can Refinance Your Home Multiple Times

Refinancing a mortgage can help homeowners achieve their goals, like lowering their interest rate or removing PMI. If it makes financial sense for you, refinancing your home more than once can help you manage your monthly budget, take advantage of investment opportunities or pay for a major life expense. If you’re not sure that refinancing is the right move for your situation, talk with a financial advisor who can help you weigh the options.

Ready to refinance? Start your application online with Rocket Mortgage to begin exploring your options.