Refinancing your mortgage is a great way to consolidate debt or get cash to make home improvements. A homeowner in their early 50s could refinance to shorten the term of their mortgage. This could help them pay it off before they retire to eliminate the monthly payment. A first-time homeowner might refinance to switch from an adjustable rate mortgage to a fixed rate mortgage. This move could help them improve cash flow and pay less interest over the life of the loan.
But how often can you refinance your home?
Favorable conditions for refinancing
To make a refinance worthwhile you usually want an interest rate that is at least .75 basis points lower than your current rate. If you plan to take cash out as part of your refi, you’ll need to have accumulated equity in the property. How can you gain equity? From either paying down a significant amount of the principal, or an increase in appraised value.
You should be prepared to remain in your home long enough to cover the costs of refinancing. If you currently have an adjustable rate mortgage and are nearing the end of the initial low rate period (generally 5, 7, or 10 years) to a fixed rate, refinancing will keep your monthly payments predictable.
Potential costs associated with refinancing
If you’re wondering how often can you refinance, you should be prepared to pay fees at closing, including:
- Any prepayment penalty and balloon payment if applicable to pay off your first loan
- The cost of a new appraisal to determine the current value of your home
- The optional cost of “discount points” which may be used to “buy” a lower interest rate. (Discount points lower the interest rate for the entire term of the loan with each .25 basis point costing 1% of the total amount you’re borrowing.)
- Closing costs can include lender fees charged for application processing, a recording fee, and an origination fee, which covers lender overhead costs and profit.
Your lender may allow you to roll some, or all, of these charges into your new loan. Just keep in mind, they will add to your monthly payment and increase the amount of interest you’ll pay over time.
The benefits of refinancing
Refinancing can be a great reset of your financial situation provided you meet the above conditions and understand the costs involved. A lower interest rate means lower monthly payments and interest savings over the life of the loan.
The ability to consolidate credit card debt and other applicable loans may increase your monthly payments some. The benefits of paying off those debts at a lower fixed interest rate, however, can make refinancing worthwhile.
Assuming you have the accumulated equity, a cash-out refi enables you to access funds for everything from a medical emergency to home renovations. And, depending on current rates, a refi is often a better way to pay for those home improvements than a bank-issued Home Equity Line of Credit.
So, how often can you refinance your home mortgage? Let market conditions, your available equity, and the amount of time you plan on staying in your home be your guide.