How often can I refinance my home?

We recently covered the topic of how soon you can refinance after buying a new home. Now, let's address how frequently you can — or should — explore the option of refinancing.

The simple answer is that you can refinance your home as often as you'd like — although we wouldn't suggest it unless it's a smart financial decision given your circumstances. Before making any move, there are many things to consider, including refinance waiting periods and complex mortgage refinance rules. Let's jump in.

Reasons to refinance

As a homeowner, you'll find many temptations to get you to consider refinancing your mortgage. Maybe your credit score goes up a few points. Or maybe interest rates are going down. Just be smart about it and don't be trigger happy: Weigh the potential savings against the costs of refinancing. In most cases — but not all — it's preferable to refinance earlier in your loan term rather than later so that any savings will cover the loan costs over time.

How often you refinance depends on when you can financially justify it. Here are some reasons why you might be considering a refinance:

• Most homeowners refinance a mortgage to lock in a lower interest rate on their loan to reduce their monthly mortgage payments. If interest rates have dropped substantially since you took out your loan (or since you last refinanced), you could save thousands over the life of your loan. A good rule of thumb is if you can lock in a rate that's at least one percentage point lower, do it.
• Maybe you chose an adjustable-rate mortgage when you weren't sure you'd stay in your place that long, and now you want to switch to the stability of a fixed-rate loan.
• Did you take out Private Mortgage Insurance (PMI) on your first home loan? Once you paid off at least 20% equity in your home, you may not need PMI — or want to pay it — anymore. 
• An income change can make it hard to keep up with monthly payments. Whether or not you applied for forbearance, refinancing to increase your loan term — in essence, stretching out your loan over an extended period to reduce monthly payments — is a much better option than foreclosure.
• Another reason to refi could be that you need money for renovations or other big expenses (like a wedding or college tuition). If so, a cash-out refi or a HELOC might make sense for you.

Mortgage Refinance Rules

Some lenders may have limitations on how frequently refinancing is allowed. If that's the case with your home loan, consider applying with another lender. Rules surrounding refinancing vary depending on the type of loan you have and any changes that may have happened to your financial situation. Here are some guidelines to consider.

Closing costs:

• You'll need to pay closing costs…again. That includes application fees, title search, inspection, attorney fees, and more, often adding up to sometimes 2% to 4% of your new loan amount.
• You'll need to make sure the amount of money you'll be saving every month can cover the expense. Let's say your closing costs are $5000 and you'll be saving $100 a month. You'll need to stay in your home for just over four years (50 months) for your savings to cover those closing costs. After that, the savings all go in your pocket. But if you're not looking to stay put that long, it might not be worth it.
• Factor in other fees, like for an appraisal, that aren't included in the closing costs. Added together, it'll help you determine if the savings makes sense.

Waiting periods:

• For conventional loans, like Fannie Mae and Freddie Mac, there's usually no waiting period to refinance.
• If you're looking to refinance a government-backed loan, like FHA, VA and USDA loans, there can sometimes be a six-month waiting period. 
• But be aware, some lenders require a six-month wait regardless of loan type.

Credit:

• Having a good credit score is essential to getting offered a good interest rate. If your credit score is lower than when you bought your home, or when you last refinanced, you may have trouble getting approved for a new loan. You might want to focus instead on your credit report.

Penalties:

• Check your current loan terms to make sure there are no prepayment penalties that could kick in if you refinance your loan. Typical limits are three to five years after the last refinance or loan origination.

Make sure refinancing is right for you

By definition, a refinance is closing one loan and taking out a new one, so you'll be extending your mortgage term each time. Unless this is your “forever home,” that shouldn't pose much of a problem. So, if you think refinancing is a good move for you, check out our refinance products. Or, if you're ready, you can always apply online.

As always, this process is always easier to navigate with an experienced mortgage professional. Search for a local loan officer near you to discuss your options.