The answer to the first question, at least, really is quite simple. Generally speaking, there is no limit whatsoever to how often a homeowner may refinance his or her mortgage. One could embark on a pattern of one refinance after another after another he so chose, but this almost certainly would not be in anyone’s best interest.
In most cases, lending institutions will be all too eager to process a refinance for you no matter what your situation, because they will collect money on the closing costs associated with your loan.
Any limitations that are placed upon when one may refinance come from individual lenders. For example, some lenders require that you have the home for at least one year before you may refinance. Others require that you have a certain amount of equity built up in your home before you are able to refinance – such as 10%.
The questions become then, not how often you are able to refinance but rather – given that the option to do so is available to you at nearly all times – when can refinancing work for you?
A Big Decision
Even though it is possible to refinance as often as you wish, you do not want to do this. While refinancing is a common financial tool, it also is a rather big undertaking. In fact, the process of refinancing is very similar to the process of obtaining your original mortgage in the first place.
The costs that go into securing an original mortgage essentially are the same costs that are attached with refinancing. In order for it be “worth it” for you to refinance, the benefits that you stand to enjoy from refinancing must compensate for the costs of the refinance.
As a general rule, most experts agree that refinancing a mortgage becomes “worth it” if the current market interest rate is at least 2 percentage points lower than is the interest rate on one’s current mortgage. While a 1.5 percentage point difference may be sufficient in certain unique cases, a 2% difference usually is the breaking point with which the benefits of refinancing outweigh the (literal) costs of doing so.
In addition to this guideline, you also should consider your plans for your home before refinancing. Will you only be in your house for another year or two? If so, then chances are that refinancing would not be worth it. It is suggested that homeowners only should refinance if they will be in their homes for at least three years after the fact.
On a more individual basis, you should consider your goals for a refinance before deciding to attain one.
In order to determine whether your goals are consistent with refinancing in your situation, speak candidly with a trusted professional. Among the most commonly sought after benefits of refinance are the following:
- To obtain a fixed interest rate by refinancing an adjustable-rate mortgage (ARM).
- To exchange one ARM for another that comes with a lower rate and possibly more attractive terms and conditions.
- To switch to a loan that has a shorter repayment term so that equity builds up in the home more quickly.
- To take out money against the equity that already has been built up in the home for some purpose.
Whether or not you are “allowed” to refinance at any given time is fairly irrelevant because most lenders will be pleased to refinance with you whenever you choose. Instead of focusing on this criteria then, consider the market, your goals for your house, and the benefits that you are looking for to determine whether or not refinancing is right for you.
If you decide that refinancing is not worth it at this point after all, but if you still desire some change with your mortgage, then speak with your mortgage lender. Discuss how you might be able to alter your current agreement to better suite your needs. You might consider your other mortgage options as well, such as a obtaining a second mortgage.