How Many Times Can You Refinance Your Home?

a miniature house on top of a stack of coins, symbolizing how many times you can refinance your home

From a legal perspective, there’s no set limit on how many times you can refinance your home. 

When you secure a conventional loan, you’ll be allowed to borrow against the equity of the home after a certain period, which you can do recurrently. 

This process of replacing your old mortgage with a new one is technically called mortgage refinance.   

However, it’s important to note that a lender or mortgage broker in the US will have a few requirements that you need to meet to be eligible for this privilege.

For starters, a lender might enforce a waiting period, also called mortgage seasoning, between the time you close on your first loan and the time you can refinance it. For conventional loans, this is generally anywhere from 60 to 90 days. However, this would take longer for cash-out refinance and government-backed loans.

Another requirement is that you must have built equity on the property you bought to take out cash against it. And, remember that every time you tap into a home’s equity, you’re also reducing the percentage of the loan that’s available for you to use.

According to the Mortgage Reports, most lenders only allow borrowers to refinance up to 80% of their original loan value, so you should consider this when you opt for a cash-out refinance.

Now that you understand how many times you can refinance your home, all you need to know now is when refinancing makes sense and the benefits and potential drawbacks that come with it.

When Is the Right Time to Refinance?

If you’re opting to refinance your home, you should make sure it’s a wise financial move for you. Here are situations where it makes the best sense.

When You Want to Lower Your Interest Rate

The most common reason why borrowers refinance their mortgages is to secure a lower interest rate. This is especially true if rates have dropped.

Typically, you should consider this move if interest rates drop by 1%, as it can save you thousands of dollars in a given year. Not only that, but it also helps you build equity in your home faster.

More of your payment goes toward the principal as well. This enhances your financial position and potentially saves you thousands over the life of your mortgage.

When You Want to Switch to a More Favorable Loan Term

Do you need more time to pay off your loan? Or, would you like to pay it off faster? Refinancing will allow you to do just that!

However, you should remember that, while a longer loan term can lower your monthly mortgage payment, it’ll also take longer to pay it off. On the other hand, a shorter term will increase your monthly payments, but you’re paying less in interest in the end.

When Your Credit Score Has Significantly Improved

An enhanced credit profile often qualifies you for lower interest rates. This improvement can translate into substantial savings and more favorable loan terms.

When You Want to Remove Private Mortgage Insurance

Typically, lenders require you to pay private mortgage insurance (PMI) if you originally put less than 20% for the down payment on your loan. This is to protect themselves in case you default on your mortgage payments.

PMI premiums vary, but according to My Home by Freddie Mac, you can expect to pay $30 to $70 each month for every $100,000 you borrow.

Refinancing often removes this expense.

When You Want to Avoid Payment Increases in an Adjustable-Rate Mortgage (ARM)

ARM interest rates can increase or decrease over time. If your interest rate is about to increase, you can refinance and switch to a fixed-rate mortgage. Or, you could refinance with a new ARM with a lower starting rate.

When You Want to Borrow Against the Equity in Your Home

As previously implied, refinancing allows you to tap into your home equity, which is known as a cash-out refinance. In this process, you pay off your existing mortgage, replace it with a larger one, and take the difference in cash, which you can use for essential expenses.

Utilizing your home equity through refinancing is a strategic way to access funds while potentially securing better loan terms.

Benefits of Refinancing a Conventional Loan

a couple considering refinancing their home

Refinancing a conventional loan is beneficial in many ways. Here’s why many borrowers consider it to be a savvy financial move:

  • Lower Monthly Mortgage Payments – With lower interest rates, you can reduce your monthly payments.
  • Shorter Loan Life – Choosing a shorter loan term through refinancing allows you to pay off your mortgage faster. This builds equity in your home quicker and saves you money on total interest payments.
  • Ability to Lock in a Fixed Interest Rate – Switching from an ARM to a fixed-rate mortgage provides stability and protection against potential future rate hikes.
  • Ability to Change the Loan Type – Refinancing enables you to switch between different loan types to better suit your financial situation.
  • Debt Consolidation – You can consolidate high-interest debt into your mortgage through cash-out refinance and streamline your finances. This makes debt management simpler and results in lower total monthly payments.
  • Cash for Expenses, such as Home Improvements and Repairs – As you borrow against your home equity, you can receive cash that can be used for various purposes, such as renovations or repairs. This provides a cost-effective way to fund necessary expenses while leveraging your home’s value.

Potential Drawbacks of Refinancing a Conventional Loan

While there are many benefits of mortgage refinancing, there are also potential drawbacks that you need to be aware of:

  • The Need to Pay Closing Costs—Again – When you refinance, expect to pay a certain percentage of the loan principal in fees. Rolling these costs into your mortgage balance may ease the upfront burden but increase the overall amount owed.
  • Another Qualification Process to Undergo – Changes in your credit or financial situation will require you to be evaluated to qualify for mortgage refinancing.
  • Prepayment Penalty – While uncommon, you might incur a prepayment penalty if you pay off the loan before the term ends. Review your loan agreement for any penalties and weigh the cost against potential savings.

Possible Negative Impact on Your Credit – Yes, the refinancing process may temporarily lower your credit score due to hard inquiries from potential lenders. However, if you shop for rates within a short period, multiple inquiries are typically counted as one. Also, refinancing can reset your mortgage status, temporarily impacting your credit. But with consistent on-time payments, refinancing can ultimately improve your credit in the long term.