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Can you refinance your mortgage a second time (or more)?

MoneyWise logoMoneyWise 8/6/2020 Kim Porter
a house with trees in front of a brick building: Can you refinance your mortgage again and again? © @jodywissing / Twenty20 Can you refinance your mortgage again and again?

As mortgage rates continue to hover below 3%, you might be eager to refinance your home and cut your interest costs — except you've already refinanced before. Isn't it just a one-and-done thing?

In fact, there’s no limit to the number of times you can replace your home loan with a new one. And, a refinance can save you money and is worth exploring even if you took out your current mortgage as recently as January through March of this year, says Dan Green, founder and CEO of the mortgage lender Homebuyer.

"Homeowners with mortgages from 2019 and early 2020 are saving 8% to 10% (off their monthly payments) when they refinance into today's lower rates," Green says.

But there are costs involved, and you'll need to consider whether your mortgage lender penalizes early payoffs or if there’s a waiting period before you can refi again.

Here are some questions you’ll need to answer before you move ahead with doing another refinance.

How much can you save by refinancing again?

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Refinancing is all the rage right now because mortgage rates are the lowest in history, as a side effect of the economic chaos caused by the coronavirus. Average 30-year mortgage rates recently fell below 3% for the first time ever — and have kept on dropping.

Thanks to the plunging rates, nearly 18 million U.S. homeowners could save an average $287 a month — more than $3,400 a year — by refinancing, according to research by the mortgage data firm Black Knight. But, as they say in the commercials, your results may vary.

Here’s an example of how refinancing again can help you save major money.

Say you took out a 30-year fixed-rate mortgage in the amount of $300,000 five years ago, with a 5% interest rate and a 20% down payment. Your principal and interest (P&I) payments are $1,288 a month.

Last summer you refinanced into a new 30-year loan with a 4% interest rate, lowering that P&I payment to $1,074.

But now, you qualify for a sweet 3% interest rate. Another refinance into a new 30-year loan could lower your monthly payment to just $927. And your interest savings would be huge.

Mortgage in 2015

  • Interest rate: 5%
  • Principal balance: $240,000
  • Monthly P&I: $1,288
  • Monthly savings: —
  • Interest over 30 years: $223,990

Refinance in 2019

  • Interest rate: 4%
  • Principal balance: $225,000
  • Monthly P&I: $1,074
  • Monthly savings: $214
  • Interest over 30 years: $161,768

Refinance in 2020

  • Interest rate: 3%
  • Principal balance: $220,000
  • Monthly P&I: $927
  • Monthly savings: $147
  • Interest over 30 years: $114,028 If you’d stuck with the 5% mortgage and never refinanced, your interest costs would have totaled $224,000 over the life of the loan. The 3% loan comes with lifetime interest costs that are smaller by nearly half: just $114,000.

Will you ever 'break even'?

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The potential savings may make you salivate, but to determine whether a refi makes financial sense you also have to factor in the costs of the new mortgage.

Shop around and get a few rate quotes, along with estimates of closing costs. Those loan fees typically reach $5,749, according to mortgage data firm ClosingCorp.

But they could be zero, in some cases.

"Refinancing a mortgage should never be expensive," Green says. "Many lenders offer zero-closing-cost mortgages upon request."

With this strategy, the lender rolls the closing costs into the mortgage principal. You’ll likely pay for it in the form of a higher interest rate, but the rate still might be lower than the one you have now.

Once you know your savings potential and costs, figure out how long it will take to break even. If you spend $3,000 on closing costs to save $150 a month, for example, you’ll recoup the costs within 20 months — then start seeing net savings.

If it's likely you’ll sell the house and move before the 20 months are up, you’ll never break even — and the refinance isn’t worth doing.

Is it too soon for you to refinance again?

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While you can refinance a mortgage as many times as you want, individual lenders may have standards that limit when you can do so. It comes down to the type of mortgage you currently have and the type of refinance you want to use.

Conventional loans

If you have a conventional loan, including one owned or guaranteed by a government-sponsored mortgage company (namely Fannie Mae or Freddie Mac), you might be able to refinance right after closing on your most recent home loan.

But some lenders have waiting periods, around six months to two years, before a borrower can refinance again with that company. If you’ve recently refinanced and want to use the same lender for another refi, you might need to hold off.

You can skip this waiting period if you comparison shop for your new loan and find a different lender.

You’ll also need to check whether your conventional mortgage comes with a "prepayment penalty." You might be charged a big, fat fee — sometimes thousands of dollars — for paying off your mortgage early, usually within a few years of closing on the loan.

A prepayment penalty can cancel out some of the savings from a refi, but they’re rare. To find out whether you have one, break out your mortgage agreement or call your loan servicer to ask.

Federally backed loans

Government-backed loans include FHA, USDA and VA loans, which come with perks that can include lower down payments and interest rates, and easier lending requirements.

If you’re looking to refinance one of these mortgages, you have two options:

  • Use a streamline refinance. These loans demand little time and paperwork. But you need to wait six to seven months from the date you closed on your current loan to apply for one. You’ll also need to show a history of on-time payments.
  • Refinance into a conventional loan. There’s no waiting period if you go this route, but you’ll have to meet a conventional loan's higher lending standards. For example, you may need a higher credit score.

Cash-out refinance

With a cash-out refinance, you'll take out a new mortgage for more than you owe, then pay off the old loan and keep the extra cash. The catch: You might need to wait until you’ve built enough equity.

Home equity is the difference between your home’s market value and your loan balance, so it represents your ownership in the home.

Lenders usually allow you to borrow up to 80% of the value of the home, which means you typically need at least 20% home equity to qualify.

Will your re-refinance be a hassle?

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This is an easy question to answer, particular since you've been through it all before and know the drill.

Remember the other or last time you refinanced? Taking out a new loan won't be any more difficult. In fact, it should be easier — since you're a veteran of the process.

"Refinancing a mortgage amounts to pushing papers. For most homeowners, it's a simple endeavor that takes less than an hour of their time, says Green, of Homebuyer.

That's just a little bit of time that can be worth hundreds of dollars in savings per month, and tens of thousands of dollars over the coming decades.

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