How Often Can You Refinance Your Home? What You Need To Know!
For most people, their house is their largest asset and where most of their finances are tied up. Refinancing the mortgage that you used to pay for the house in the first place could free up cash to make upgrades or repairs, or if you’re struggling to meet current repayments, it could allow you to free up some more disposable income.
There are no legal limits on how often you can refinance your home so you can do so as often as you like, but you do need to consider whether your credit score is likely to have changed, how much equity now remains in the property, and whether you will have to pay closing costs or any prepayment penalties. Refinancing too often may prove financially prohibitive.
Considerations For Refinancing Your Home
You can refinance your home as often as you want. However, your current lender may stipulate a period of time between appraisals, effectively implementing a waiting time before you can refinance again. Commonly, this period is about every six months.
In order to refinance, you need to have equity in your property. This is the difference between the sale value of the house, under current market conditions, and the amount still owed on your mortgage. If your property has decreased in value, perhaps because of prevailing marketing conditions, there may not be enough equity left in the property to effectively refinance.
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Whenever you refinance, you will have to pay closing costs, unless you opt for a no-closing-cost refinance, but these may not offer the best terms and rates. Closing costs can include application, appraisal, inspection, attorney, and title fees. If you refinance too often, any financial benefit you would have made from improved rates may be soaked up by the additional closing costs.
In the same way that a property’s value, and the amount of equity you have in a property, changes over time, so too does credit score. If you have more debt or a lower salary than the last time you refinanced your mortgage, your credit score may have been negatively impacted. A poor credit score means that you won’t have access to the best rates.
Some lenders’ policies include terms that penalize the lender if they repay a mortgage early. Although lenders are discouraged from including such penalties, they do exist, and you need to know how much of a penalty, if any, you will face for paying your mortgage back before it comes to term.
Although there are potential pitfalls to refinancing too often, and it may not always benefit you to do so, there are some potential benefits that make the process worth considering.
Benefit From Lower Interest Rates
Interest rates can change dramatically, year on year. If you arranged your mortgage when interest rates were high, then refinancing when they are at a lower rate will mean that you repay less in interest. While this doesn’t mean you should refinance after a 0.1% drop, you can enjoy considerable savings over the lifetime of a mortgage if you do refinance at the right time.
Change The Loan Term
Refinancing is a good opportunity to change the terms of your loan. If you find that you are earning more now than when you first took out the mortgage, you may be able to repay the total loan over a shorter space of time. This means repaying a lot less interest, although it will mean you have to pay more each month.
Avoid Mortgage Insurance
Mortgage insurance is most often a prerequisite for lenders that put a deposit of less than 20% down. The insurance protects the lender, rather than the borrower, and it covers repayments if you default on the mortgage. Because a lot of lenders demand this insurance be taken out for smaller deposits, refinancing once you have enough equity to take out an 80% mortgage, or less, means you can get rid of the mortgage insurance element and save some money on repayments.
There are no laws or regulations to dictate how often you can refinance a mortgage. You could refinance every month if there was a financially beneficial reason to do so. However, refinancing does attract costs and these mean that it is typical to only refinance once or twice a year. Take all costs and penalties into account when calculating the potential benefits.
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