You might wonder how many times you are allowed to refinance if you want to borrow money against the equity in your house.
A lender might not restrict how many mortgages you can refinance. Some lenders may require a certain amount of time between the closing date and when you refinance. This article will explain the benefits and drawbacks of refinancing more than once. You’ll also learn how to improve your credit score, and when it makes sense.
Can you refinance frequently?
The refinance involves paying your old mortgage off and creating a brand new one. There is no legal limit on how often you can refinance a mortgage. You can do it as many times as you want. You may be required to wait a certain amount of time, depending on the lender you choose and what type of loan it is.
Here is how much time you may have to wait depending on the type of loan.
- Conventional Loan — Generally, you don’t need to wait six months to refinance. However, some lenders will enforce this waiting period.
- Refinance with cash-out — There is a normal six-month wait period.
- Government-backed loans — To qualify for a FHA streamline loan, you must wait at least 6 months from the date of your last mortgage payment and 210 calendar days after your final closing date. It is also necessary to make six mortgage payments. You must wait at least 12 months for USDA loans after the original loan was closed. VA streamline refinances have a waiting time of 210 calendar days from the date that your first mortgage was due.
Does refinancing hurt your credit?
Refinancing can temporarily affect your credit score for several reasons.
The first thing that will happen is that potential lenders may check your credit report with a “hard inquiry”, which can temporarily reduce your scores. You can manage this impact by taking certain actions.
You have a limited time window where your multiple credit inquiries will only be counted once when you are shopping for a home loan. Typically, you have 14 days. However, it may be extended.
You may not know the scoring model that your lender uses, so you should get rate quotes as soon as possible.
Second, credit bureaus consider that older loans are indicative of an established track record for making repayments, and this is good news for your score. Refinancing your mortgage can damage your credit because it turns your existing debt into “new”. Remember that the impact of refinancing is temporary. Refinancing can actually improve your credit score over time if you pay on time each month.
Refinancing: When it makes sense
Calculate the financial impact of refinancing before you decide. Credit Karma offers a free calculator to estimate the savings you could make by refinancing your mortgage.
Refinancing can have many benefits.
How to lower your interest rates
Refinancing can help lower monthly payments if interest rates have dropped or your credit score has increased in the past few years. A lower interest rate can also allow you to build more equity faster.
Change your loan period
You need to extend the time you have for paying off your mortgage. Would you like to have it paid off faster? You may be able to modify the mortgage term through refinancing. The longer the term of your loan, the lower your mortgage payments will be. However, it takes longer to repay and costs more. Shorter terms will increase your monthly payments, while you pay less interest in the end.
You don’t need to refinance your loan to shorten it. By paying extra each month, you can shorten the loan term.
Removal of private Mortgage Insurance
Private mortgage insurance (PMI) is often required by lenders if you put less than 20% down on a conventional loan. PMI is often required by lenders to cover themselves in the event that you are unable to make mortgage payments. PMI rates vary depending on a number of factors. According to Freddie Mac, you should expect to pay between $30 and $70 per month for every $100,000 borrowed. If you can remove the PMI premium, refinancing could be a good idea.
How to avoid a sudden payment increase in an adjustable rate mortgage
An adjustable-rate mortgage (ARM) can change your monthly payments by increasing or decreasing your interest rate. Refinancing is a good option if you are aware that your rate will increase. Your monthly payment and interest rate can remain the same. You can also refinance to a new adjustable-rate mortgage (ARM) that offers a lower rate at the beginning, smaller changes in rate or lower caps on interest.
Borrowing on the equity of your house
Cash-out refinancing is a good option if you’re looking to access your equity. It involves replacing your current mortgage with a bigger one, and then taking out the cash difference. If you do not want to start your loan again or you have a seasonal requirement, then you may consider a Home Equity Loan or a Home Equity Line of Credit (HELOC).
Considerations for refinancing multiple times: Are there any costs to be considered?
When refinancing a mortgage, there are several costs to consider. You’ll have to pay the closing costs, which could be anywhere from 3% to 6 % of your loan balance. Closing costs add up quickly if you refinance more than once. We’ll take a look at some of the most common fees associated with refinances.
Origination fee
The lender will charge you an origination fees to underwrite and process your loan. The fee is usually around 1% of the total amount.
Appraisal fee
Most lenders require that an appraiser inspects your home and assesses its value before approving a loan. The cost of an appraisal is usually between $300 and $700. However, the price may vary depending on your location or type of house.
Inspection fee
A licensed home inspector is usually required by most lenders to ensure that your property does not have any major issues. They usually check for signs of pest infestation, structural damage and plumbing problems. A home inspection will cost between $175 and $350.
Insurance and title search
Your lender will conduct a search of your title during the application process to discover any possible legal claims, such as liens, against your property. Title insurance is also required to protect your lender if it makes a mistake in its title search. You can expect to pay between $700-$900 for these fees.
Discount points
Your lender might allow you to pay discount points during the closing process in exchange for lower rates. Each point is equal to 1% of your total loan. One point on a loan of $200,000 would cost $2,000. In general, the borrower pays anywhere between zero and three points.
Prepayment penalty
You may have to pay an early repayment fee or refinance fee depending on the lender. Prepayment penalties can range from one month’s mortgage interest to up to six months. Prepayment penalties are not charged by all lenders, however. Ask your lender whether you will be paying one if and when you refinance.
What’s next?
It may be worthwhile to refinance your mortgage again in certain situations, particularly if you don’t plan to sell the home anytime soon. You may also be able borrow from your equity or take advantage of a lower rate. Before making any decisions, you should ask yourself some key questions.
- What would be the impact of refinancing on my mortgage payment, credit terms and loan term?
- What would closing cost be?
- Is it worth it?
If you are considering a refinance with cash out, it’s best to refrain from using that money to settle unsecured debts or those of a short term, like credit cards and car loans. Consult a professional financial advisor and consider other ways to consolidate debt.