By Hal M. Bundrick, CFP
You were convinced that refinancing your mortgage was the right thing to do -- the first time. Maybe you've even refinanced since then. And still, in your situation and with rates where they are, you're tempted to refinance yet again.
How many times can you refinance your home loan? Can you really get too much of a good thing?
A refinance requires reasoning, and sometimes seasoning
There are a lot of reasons to refinance your mortgage. Perhaps to get a better interest rate or to change the term (length) of your loan, or convert an adjustable-rate loan to a fixed-rate. Or you may want a cash-out refinance, borrowing against the built-up value of your home to pay for remodeling or other things.
And the fact is, you can refinance as often as you want, but some lenders look for a "seasoning" period between home loans -- establishing a certain time frame between appraisals.
"There are no standard seasoning requirements for rate and term refinances, although some lenders may require that," says Ray Rodriguez, a regional mortgage sales manager for TD Bank in New York City. "The industry standard for a cash-out refinance is six months."
A penalty for an early payoff on your current mortgage might be the only other barrier to refinancing. However, Rodriguez says recent regulations "highly discourage" banks or mortgage lenders from offering mortgages with prepayment penalties.
"A homeowner can refinance their mortgage as many times as they would like, but they should establish objectives and find a product that meets their unique financial situation," Rodriguez says. "For example, a shorter term loan will have a lower interest rate than a 30-year fixed-rate loan, but the payment will be higher because you're paying it off faster."
It's simply a matter of running the numbers on a refinance to see if it's right for you, no matter how many times you've refinanced before.
This couple refinanced their home twice in one year
Holly and Greg Johnson, who live in central Indiana, refinanced their home twice in one year. How does that work?
"We originally refinanced a 30-year mortgage from 6.5% to 5.25% because the savings was going to be worth the out-of-pocket fees," Holly Johnson says. "Then we refinanced again to a 15-year loan at 3.25% once rates got that low. We did a fee-free refinance that time, so we didn't pay any closing costs. If I remember correctly, we could have gotten a 2.75% 15-year-loan, but we chose 3.25% to get our closing costs waived. Once again, the savings was there if we went through with it, so it was definitely worth it."
Like many young couples, the Johnsons bought their home with a small down payment. Having less than 20% equity (the amount they'd paid versus the loan amount) meant they had to pay private mortgage insurance, which protects the lender from loss.
With the lower interest rate and shorter loan term from the first refinance -- combined with making additional payments toward the principal -- the couple quickly achieved more than 20% equity. By the time they refinanced again, the Johnsons were able to remove the private mortgage insurance requirement, netting them an additional $135 savings per month.
Not just 2 refinances -- 4
But that's not all.
"In addition to refinancing our primary home, we also refinanced our rental properties once each," Johnson adds.
Sounds like a lot of work.
"I wouldn't say any of our refinances were especially difficult, because we had the equity and the numbers made sense every time. We're also organized, so gathering the required paperwork was never a huge hassle," she says.
That's the key: The numbers have to make sense. And you've got to be prepared for the paperwork. Obviously, the Johnsons know a thing or two about refinancing. Do they see another refinance round in their future?
"We owe very little on our home now and don't plan to move, ever," Holly Johnson says. "I can't imagine refinancing again now, considering the fact that this is the home we'll live in forever. We have around 10 years left on this loan if we make the minimum payment -- and a lot less if we continue to prepay slightly every month. Rates would have to go extremely low -- like 2% -- to convince me to refinance again, considering what a good position we're in already."
Hal Bundrick is a staff writer at NerdWallet, a personal finance website. Email: email@example.com. Twitter: @halmbundrick