You have the right to refinance your mortgage as many times as you want, but your lender may place some limitations on how frequently you may do so. You will also have to meet your lender’s requirements related to debt-to-income ratio, credit score and percentage of equity. Here are some things to think about if you’re considering another mortgage refinance.
Pros and Cons of Multiple Refinances
Refinancing to lock in a lower interest rate may save you thousands of dollars in interest over the remainder of the loan term. Closing costs may total thousands of dollars, however, which means it may take several years to reach a breakeven point when your savings equal the amount due at closing. If you plan to stay in your home longer than that, you will save money in the long run. If you will move before then, or if you aren’t sure, refinancing may not be the right decision.
You may be thinking about switching to a longer repayment period to reduce your monthly payments. If so, compare the anticipated savings to the closing costs to figure out how long it would take to break even. If you’re struggling to cover your mortgage because of a job loss or pay cut, refinancing to lower your monthly payments may be a smart move, even if it means paying more in interest overall since it may help you avoid foreclosure.
Shortening your loan term will help you pay off your mortgage sooner and pay less in interest, but it may result in significantly higher monthly payments. Compare the potential savings in interest charges to the closing costs and figure out the breakeven point.
Reducing your principal balance faster can help you build equity quickly. If you put down less than 20% and you have been paying for private mortgage insurance, refinancing again may allow you to build enough equity to eliminate PMI.
If you refinanced in the past to tap into your home equity, you may not have enough equity to qualify for another cash-out refinance. If you are eligible for another cash-out refinance, you may not get the lowest interest rate available.
Should You Refinance Again?
There is no right or wrong answer. If you have already refinanced your mortgage, you may not have broken even yet. In other words, the amount that you paid in closing costs may be more than the amount you have saved so far.
If you refinance again, you will incur more closing costs, which may take even longer for you to reach a breakeven point. Think carefully about what you hope to achieve through another refinance, how much you would have to pay in closing costs, how much you would save, how long it would take for you to break even and how long you plan to live in your home.
