How Often Can You Refinance a Mortgage?

Homeowners tend to track the rates of interest very closely, wondering whether they can benefit from a reduction even if they’ve refinanced their loan recently. Perhaps the most frequent question we receive at BrickWood Mortgage is simply whether there is a limit to the frequency with which a borrower may refinance a home loan. 

How often can you refinance your house? How often can you refinance a mortgage? The quick answer is that there isn’t a universal one. There isn’t a limit to how many times you can refinance your home loan. Although, it doesn’t mean that it is always a good idea to refinance. 

This is something that we help our clients with each and every day as a mortgage broker, and there are many factors that come into play that determine how often it may be a good idea to finalize another loan. Whether you’re asking about refinancing frequency or another question – can you refinance multiple times, for example – contact our knowledgeable team today! 

Understanding Lender Seasoning Requirements

Although the government doesn’t impose any restrictions on refinancing, banks have restrictions of their own. The first restriction is the waiting period. This is the time when you have to wait after closing the final refinance deal before applying for refinance again. This waiting period is usually six months.

During this time, the lender is able to set up the payment history and make sure the loan is performing properly prior to paying it off. There could be some exceptions to the time frame for different loans. For instance, the wait times for the streamlined refinance of an existing government-backed loan could be different than those for the conventional cash-out refinance.

The Impact of Closing Costs on Frequency

The largest disincentive for people to constantly refinance their loans is related to cost. Refinancing a loan is not free, and there may be closing costs that can vary between two and six percent of the loan amount. If you constantly refinance your loan whenever there’s a reduction in interest rates by a quarter percent, you’ll end up paying more in fees than you save on interest.

We always calculate the break-even point for you. The break-even point is the time it will take for your savings to be more than the cost of the new loan. If you have plans of moving or refinancing again before you get to the break-even point, then you will actually be losing in the process of refinancing. It means that you should only refinance when the calculations go in your favor, most probably due to low rates.

Credit Score and Equity Factors

Each time you make a new loan application, the lender will pull your credit report. This may result in a few points dropping off your credit score. If you refinance your loan too often, your scores may take a beating, making it even harder for you to qualify for the best interest rates.

What’s more, the value of your home equity is also a significant consideration in this regard. If you are including the cost of closing in the new loan amount instead of paying it in cash, you are depleting the value of your home equity in the process. If you do this consistently, you might end up owing more on the property than it is actually worth in the end.

Tax Considerations

A possible complication of refinancing your home is its effect on your taxes. Under current taxation rules, you can claim an interest deduction on your home loans used for purchasing or improving your home. However, if you refinance your home and take out home loans for other expenses like clearing your credit card or purchasing a vehicle, you won’t be able to claim an interest deduction.

Another effect of refinancing is that it also restarts the amortization process. What this means is that you will have to pay mainly interest on the loan for the first years of the loan. Although this will mean a reduction in the monthly payments, it will also mean a longer period before the principal is repaid, and this has several implications.

Taking the Correct Decision for Your Future

When it comes to whether or when you should refinance, there is much more strategy involved than there is a set of rules. Although you are technically allowed to refinance whenever you like after the passage of seasoning periods, there is little point in doing so if you haven’t had some sort of success financially.

If you’re seeking advice on next steps, consulting BrickWood Mortgage as a mortgage broker near Myrtle Beach, SC, can help you navigate your options effectively. We urge you to look beyond the advertised interest rate and examine the total cost of your loan. By examining your break-even point, equity position, and long-term goals, we can help determine whether it is the perfect moment to take advantage of a new interest rate!