How Many Times Can You Refinance a Mortgage?

I'm thinking about refinancing my home because of lower interest rates. However, I refinanced my original mortgage just a few months ago, can I refinance again? When?

1 Answer

You can refinance a mortgage as soon as you want to and as often as you like. However, there is one thing that you should keep in mind: what is the cost?

One element of the cost involved is whether or not your mortgage has a prepayment penalty. Generally speaking these clauses say "if you pay off your mortgage within X years from the date you obtained it, you have to pay a penalty of Y percent of the loan amount." Some mortgages have these clauses, some don't. You have to check your mortgage documents to be absolutely sure.

Another element of the cost involved are the closing costs associated with the loan. Those can include such things as origination fees, title charges, appraisal fees, intangibles taxes (depending on the state, county or city where the property is located), recording fees, etc. Once you add all of these things up, you will have to determine whether the monthly savings you get from refinancing justifies incurring these costs. In order to do this, you would need to have your mortgage person do a break even analysis for you.

Here's a simple example of a break even analysis: Rates have gone down and you determine that by refinancing you can save $100 a month on your mortgage. You go to a bank or a broker and they tell you that your closing costs are going to be $3000. By dividing the closing costs by the monthly savings (3000 divided by 100) you get a break even time of 30 months. If you plan on staying in your home for less than 30 months, refinancing doesn't make any sense. If you know that you will move in exactly 2 years, for instance, you would be paying $3000 in costs for a total of $2400 in savings. On the other hand, if you plan on being in the house for five more years (60 months) you will save a total of $3000 (60 months times $100 in monthly savings equals $6000, less the $3000 cost of refinancing equals $3000).