How often can you refinance your home?

Refinancing may give your finances flexibility. Maybe you’ve already capitalized on low-interest rates and refinanced your home once, or perhaps you switched from a fixed loan to an adjustable-rate mortgage (ARM) for better terms, and now you are considering refinancing again.

After all, when you purchase a home, you don’t know what your income may look like five or ten years down the line. You also don’t know what expenses you may be facing in the future.

Homeowners may be interested in refinancing for several reasons:

• Taking advantage of a lower interest rate and saving money long term
• Reducing the amount of monthly payments
• Switching from an adjustable rate to a fixed rate on your mortgage
• Combining a first mortgage and a home equity loan
• Tapping into your home equity with a cash out refinance

But is there a limit to how often you can refinance your home?

There is no official limit (from lenders or from the government) on how often you can refinance your home. But not only can refinancing be logistically complicated, refinancing multiple times may lead to issues down the line that could impact your finances.

That’s why it’s a smart idea to take a big picture look at your reasons for refinancing.

Benefits of refinancing

Before you begin the refinancing process, it’s important to understand your end goal in refinancing your home.

Do you want to reduce your monthly payment, pay off your house more quickly, or are you looking for cash liquidity for another financial goal? Knowing why you’re refinancing can help you understand the next steps.

A mortgage refinance calculator can be a helpful tool in determining how a refinance could save you money. Talking with a financial professional or with your lender can help you understand the long-term effects of any refinancing.

Shorten your mortgage length

If, say, you get a major raise, you may want to refinance from a long-term, thirty-year loan to a short-term, fifteen-year loan. Your monthly payment might increase, but you will be paying more toward the principal of the loan. This could potentially save you money on interest charges and finish your repayment earlier.

Tap into the equity of your home

In some cases, you may need cash in hand. A cash-out refinance allows you to restructure your original mortgage loan for an amount more than you currently owe on your mortgage. You get to receive the difference in cash, while restructuring the terms of your original mortgage.

Improve your interest rate

Refinancing should usually include a goal of moving your original mortgage loan interest rate down, especially in situations when national economic factors are more competitive than when your original mortgage loan was issued. By simply reducing the interest rate on your existing mortgage, you save money over the life of the loan in interest charges.

Reasons to refinance your home multiple times

A lot can change in a few months. That’s why it may make sense to consider refinancing even if you’ve recently closed on a mortgage. How long do you have to wait to refinance?

While there is no hard and fast rule, many lenders may decline a refinance request if it’s less than six months since you closed your mortgage.

In those cases, it may make sense to explore other lending options. It’s also not uncommon for people to refinance quite early in the life of their mortgage. After all, adjusting to a mortgage can be a learning process.

Here are some reasons it may make sense to refinance your home multiple times.

1. Interest rates have fallen

If national interest rates are now lower than the interest you’re paying on your mortgage, refinancing may make sense — even if you’ve recently closed on a house. That said, it’s important to factor in additional expenses for refinancing a mortgage, such as closing costs, or else the amount you end up saving may be negligible.

2. You’re comfortable taking on larger monthly payments

Maybe your partner finished grad school and got a well-paying job, or you have more budget flexibility than you initially thought when you did your initial mortgage math. In this case, a refinance from a long-term, 30-year loan to a short-term 15-year loan can save you money in the long run, even though your monthly payments will be larger.

3. Your plans have changed

The “forever” house you thought you moved into may be a “for right now” house. If you’re planning to move in a few years, then it may make sense to consider an adjustable-rate mortgage — especially if interest rates are low. That said, it’s important to consider worst-case scenarios, as well, so you’re prepared for rising interest rates.

4. Your life has changed

It’s hard enough to project three months into the future, let alone thirty years. A layoff, a breakup, or a family crisis may all be reasons you need cash in hand. In these cases, a cash out refinance can give you the cash you need to afford whatever is going on in your life.

Ultimately, there’s no “wrong” reason to refinance. It’s important to consider your financial goals, as well as the potential pitfalls of a refinance. Refinancing doesn’t have to be complicated, but since refinancing multiple times can affect your credit score and your property value, it’s smart to be strategic.

Risks of refinancing your home multiple times

There is no set rule about the number of times you can refinance a mortgage. And if you’ve recently closed on a house, you’re familiar with the mortgage process.

But just because you can refinance your home multiple times doesn’t mean it’s a good idea.

Here are some of the potential risks of multiple refinances.

1. Servicing costs may be more than interest savings

A refinance is technically a brand-new mortgage, complete with closing costs. That’s why, depending on your circumstances, a modest decrease in interest may not make a big difference over the life of your loan — and may end up costing more. Using a refinance calculator and talking with your lender can help you see the big financial picture.

2. Extending terms adds interest to the life of your loan

Whether it’s switching from a fixed-interest mortgage to an adjustable-rate mortgage, or cashing out, you may simply be prolonging your loan — and adding interest with every extra month in your new term. It’s important to understand how interest will affect how much you pay over time.

3. Potential problems selling your property

If you are refinancing to extend terms or to cash out, any dips in your home’s value (through market dips or other factors) may result in owing more on your mortgage than your home is worth. If you need to sell your home, you may not be able to recoup the remaining balance on your mortgage.

4. Refinancing again may be more difficult

Lenders follow different guidelines. A refinance early in the life of your mortgage is no big deal, but multiple refinances could be seen as a buyer having difficulty keeping up with payments — especially if a buyer seeks cash-out refinance options.

5. Reduces focus on retirement & savings

As you refinance and consider your home equity — whether you own one house or have multiple properties — it’s important to pay attention to other financial goals as well. For example, continuously tapping into cash out refinancing options may make it tougher to reach your retirement goals in the timeline you anticipated.

6. Extending debt into your retirement

How will you pay your mortgage if you want to downshift in the future? Thinking thirty years down the line can help you assess whether a refinance is right for you. For example, some parents consider a cash out refinance option to assist their kids with tuition. In these cases, parents should think about whether they want to shoulder a new mortgage agreement and may wish to consider other avenues for funding, such as student loans.

7. Immediate (but temporary) credit score drops

Just like a mortgage application, a refinance requires a hard credit check. A refinance will also close out your previous mortgage — and a closed loan can lower your credit score. Multiple loan applications, as well as the potential for payment confusion as you switch between lenders, could also lead to immediate credit problems, even as you make every payment on time. If you have good credit, these setbacks are typically temporary. But the potential credit score dip is one reason why it may not be a good idea to refinance multiple times.

8. Builds a dangerous habit

If you’re looking for a refinance to increase your own cash reserves, it’s important to be mindful of how — and where — that cash is going. Many people choose refinancing for financial necessities, such as tuition or medical emergencies. But it’s important to remember that a cash out refinance will likely make your house more expensive than you had anticipated over the long run. Having a plan in place is important to make sure you don’t fall behind on your financial goals.

9. Can backfire as income changes

Constant refinancing can make it tough to have clarity around your financial goals. While a fixed-rate mortgage can seem like a never-ending obligation, the upside is the consistency of a monthly payment. For example, a large raise may leave someone overly optimistic about their ability to comfortably pay off a short-term loan. It’s important to think long-term about how your income may fluctuate.

Closing thoughts: Finding the right time to refinance

If you have already refinanced your home once, do some calculations to determine if you have recovered the cost of refinancing. If not, you must include the remaining expense when calculating payback time for a second refinance. Next, determine the cost savings by considering how long you plan to stay in the home.

Check your credit history and consider your employment to determine your eligibility for a loan and your best qualifying interest rate. You may want to work with an accountant, financial advisor, or mortgage advisor from a reputable lender to calculate if you will be paying more for your home in the long term than with your current mortgage. Many homeowners look at the short-term benefits of refinancing, but don’t think about the bottom line for their investment.