Typically there are no legal limits on the number of times you can refinance your mortgage loan. However, some states, such as Texas, do restrict the number of times you can do it in a year and some lenders may also have policies that restrict the frequency with which you can refinance. Refinancing more than once can have some benefits, but there are also costs. It’s not something everyone should do. You need to identify the reason for refinancing. Then you need to weigh this against potential costs or obstacles in your case.
If you are struggling to make your monthly mortgage payments, it may be time to consider a refinance.
Refinancing can help you reduce your mortgage’s interest rate and manage payments. It can allow you to eliminate private mortgage insurance payments. And it can enable you to convert home equity into cash.
But what if you have refinanced your home before? Would this still be a good option? How often can you refinance your home loan? We’ll cover when you can refinance and how often it can be done. This should help inform whether refinancing again is a good decision for you.
Can I refinance my mortgage, again?
By law, there is no restriction on the number of times a person can refinance a home loan. But a mortgage lender can set some rules surrounding refinancing. These rules typically outline restrictions on the frequency of refinancing. The restrictions are often determined by loan type. And, if you are looking for a cash-out refinance, you may have extra conditions.
Consider your equity
Be sure to consider the equity in your home when thinking about refinancing again. This is particularly important if you have done a cash-out refinance before. It is possible you have less built-up equity if this is the case. If you have used part of the home equity before, it will reduce the proportion you have available to use again. Bear in mind, most lenders do not permit you to use 100% of the equity in your home. So you may need to calculate how much is available.
An example of a cash-out refinance
Let’s say you just paid off $50,000 of your home loan and it leaves you with a principal of $100,000. You want to do some new home improvements, so you choose to do a cash-out refinance to give you the needed funds. If you need $30,000 for improvements, we add that to the $100,000 principal to give us a grand total of $130,000. That’s the amount you’ll need to refinance.
Later on down the road, life happens. Say you have an emergency a couple of years after your first cash-out refinance. Or say you need to consolidate debt. Assume the amount you need for this new expense is $20,000. Can you do another cash-out refinance to get the funds?
You’ve made responsible monthly payments during the 2-years since your refinance. Even so, you won’t have payed down your principal much. The total amount of principal paid would only equal $2,000. This leaves you with a loan balance of $128,000. That means you only have $22,000 in equity to work with.
$150,000 Total Value – $128,000 Loan Balance = $22,000 EquityFor simplicity, this example assumes your home has not increased in value.
$22,000 is more than the $20,000 you need. But there’s a problem. Typically, lenders will allow you to refinance only 80% – 90% of your home’s value. If you take out $20,000 in a cash-out refinance, your total loan amount will be $148,000. That’s between 98% and 99% of your home’s $150,000 value.
This means you probably won’t find a lender willing to facilitate this cash-out refinancing arrangement. After all, the $128,000 you already owe is roughly 85% of your home’s $150,000 value. That puts you near the max already.
Another problem is that, if you do find a lender, they may increase your interest rate. This will cost you thousands over the lifetime of the loan.
How often can you refinance a home in Texas?
The short answer is you can refinance your primary residence in Texas once a year as long as you maintain a 20% equity.
The Texas Constitution says (source):
“A new loan secured by the same property by the same property may not close before one year has passed from the closing date of the other loan, unless on oath you request an earlier closing due to a declared state of emergency.” — (Article 16 – The Texas Constitution)
Note that this rule only applies to primary residences. There is no legal rule that limits the frequency you can refinance a second home or an investment property. However, you may find lenders impose similar restrictions on investment homes.
Should you refinance your mortgage, again?
It can be a benefit to refinance your home loan under many circumstances. Understanding your reasons for refinancing is key to knowing if it would be right for you. Take note if any of these common situations apply to you. A mortgage refinance makes financial sense if you are looking to:
Get a lower interest rate
This is one of the principal reasons many look to refinance. Have interest rates gotten lower since your most recent refinance? If so, you may want to consider this option. By doing this you can capitalize on the lower prime lending rate. This reduces the total amount of money you will pay in interest over the loan’s term.
The impact of interest rates
Remember that tiny changes in interest can mean a big difference in the total amount you pay for your home. A decrease by fractions of a single percentage point can make a big difference in total cost. Likewise, a slightly higher interest rate can mean a significantly higher total cost.
For example, take a 20-year mortgage that has a loan principal of $200,000 and an interest rate of 4.75%. The total cost of this mortgage will be about $310,187. So, you would pay about $110,187 in total interest.
Now let’s imagine another version of events where the homeowner refinances. The loan is still $200,000, and the new loan term is a 20-year term, but the interest rate is 4.25%.
This lowers the total interest, of course. But by how much? The difference in total interest between the two loans is $12,954. That is how much you could save by refinancing the 4.75% mortgage at a new rate of 4.25%. Not bad for half a percentage point!
Want to increase the existing mortgage loan term
Have you had income changes or financial hardship? If so, this is likely hindering your ability to meet the monthly mortgage payment. By extending the mortgage loan term, you can reduce the monthly payment. This will give you more flexibility in monthly cash flow.
Is your financial situation making it hard to meet obligations to your lender? See if the lender will consider a different repayment period through refinancing. For lenders, refinancing multiple times is often preferable to having to foreclose. And avoiding foreclosure is certainly in your interest. If you can’t manage your current monthly payments, see if you can refinance over a longer period. Just bear in mind that this will increase the total interest you will have to pay over the lifetime of the loan.
Want to shorten the term of your mortgage
If you want to decrease the total interest paid for your home, you may want to consider shortening the term. This will not have an immediate payoff, but it will save you thousands in the long term.
Let’s say you owe $200,000 on a home that has a 30-year term and the interest is 5%. The monthly payment would be about $1,074. The total cost of the mortgage will end up being $386,512.
If you refinance this loan with a different term and mortgage rate, you’ll save thousands. For example, a 15-year term with the same 5% rate brings the total cost to $284,686. Under this loan, you would save $101,826.
So, a refinance can save you a significant amount even if the interest rate doesn’t change.
Not every effect of shortening your loan term may be desirable, however. If the interest rate remains unchanged, decreasing the term can increase your monthly payments. In the previous example, a 30-year term with 5% interest means you’ll pay $1,074 a month. Changing it to a 15-year term increases the monthly payment to around $1,582.
Looking to eliminate mortgage insurance
If you paid less than 20% for your down payment, you are likely paying for private mortgage insurance. Most lenders will require this when less than 20% is paid. Mortgage lenders require it to protect themselves in case you default on the mortgage. You, however, don’t get any benefit from this insurance.
If you are paying monthly premiums as part of your mortgage, it can cut into your monthly budget. By refinancing, you may be able to get rid of these monthly payments.
Many lenders will remove the insurance payments when you hit the 20% equity milestone. This is common in a refinance from an FHA loan to a conventional loan.
For an FHA loan, you agree to pay insurance premiums for the duration of the mortgage. By refinancing from an FHA loan to a conventional one, you remove that condition. The monthly insurance payments can be on the smaller side. Even so, removing them will save a lot of money in the long term.
What to consider before refinancing
Many of the benefits of refinancing are attractive, but it’s not for everyone. Before you get started on refinancing again, consider some of these points.
You may have to pay closing costs
Each time you refinance with conventional loans you have to pay for closing costs. Closing costs differ by locality but are typically 2% – 3% of your total loan amount. The most predictable costs include:
- Application fees: A lender charges you for the application submission. This fee is sometimes imposed even if you don’t go through with the refinance or get denied.
- Inspection fees: An inspection can be required before the process starts. This will vary depending on your state.
- Lawyer review fees and closing fees: Sometimes a lawyer is used to complete your refinance and evaluate it prior to closing. This may be optional, and the amount of the fee varies by state.
- Appraisal fees: If you haven’t had a recent appraisal, then this may be required by the lender.
- Title search: If you are refinancing with a new lender, they will do a title search. This establishes that you indeed own the property.
Lenders will re-evaluate your creditworthiness
When you refinance, your lender will evaluate your creditworthiness. This is just like when you originally applied for a mortgage. The lender will examine the same sorts of things as when you first applied. This includes things like your credit score, debt-to-income ratio, and current equity.
If you have taken on a lot of new debt, this could negatively affect your creditworthiness. So could a decrease in your income or a dip in your credit score. You need to consider these factors.
You might face prepayment penalties
A lender has the ability to impose penalties if you pay the loan off before the term ends. This can cut into the money you would have saved in total interest paid. It’s key to read your loan’s terms to see if this applies to you before getting a new loan.
- There is no legal limit to how many times a person can refinance
- Reasons to refinance:
- You can get a lower interest rate
- You can use a cash-out refinance to fund a major purchase
- You can extend the loan term to reduce monthly payments
- You can decrease the loan term to save money on the total interest paid
- You can eliminate private mortgage insurance payments by refinancing
- Things to consider before another refinance:
- You should ensure you have enough equity before a mortgage refinance
- You should check your credit report, credit score, and debt-to-income ratio
- You should consider any closing costs associated with rate and term refinances
- You should ask about prepayment penalties
Are you ready to start looking for the right lender for your mortgage refinance? Compare lenders and rates to find the best value for you. Or, to speed up your search, read about the best mortgage refinance lenders you have to choose from.
View Article Sources
- 7 Questions to Ask Before Refinancing Your Mortgage — SuperMoney
- A Checklist for Refinancing Your Mortgage — SuperMoney
- Best Mortgage Refinance Lenders — SuperMoney
- Complete Mortgage Guide — SuperMoney
- How to Refinance And Lower Your Mortgage Rates — SuperMoney
- The Texas Constitution — Texas Statutes
- Pros and Cons of Refinancing Your Mortgage — SuperMoney
- Refinancing a Mortgage? Here’s What You Need To Know — SuperMoney
Before becoming an editor and writer for SuperMoney, David thought he’d be an academic. He now applies research skills learned from his advanced degrees, and behavioral insights gained from his background in psychology, to personal finance. He has acquired expertise in real estate and enjoys helping readers make better saving, spending, and investing decisions. Though he does most of his work in the background, you will find his name on articles from time to time.