Refinancing a mortgage loan often offers homeowners the opportunity to save a lot of money and have more flexibility in their budget. When you refinance, you are applying for and getting a new home loan. The proceeds from the new loan are used to pay off your existing mortgage debt. You then advance in the payment of your new mortgage according to the terms agreed with your lender.
Since many people who got mortgages more than a few years ago will find that interest rates are much lower now than when they got their original loan, refinancing can often be a smart financial decision. . But, in some cases, homeowners may wonder if it is possible for them to refinance if they have already done so.
In fact, it’s common for homeowners to be confused about the rules regarding the number of times they can refinance. Here’s what you need to know if this is a question you are asking yourself.
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Is there a limit to the number of times you can refinance?
The good news is that there is no rule that specifies the maximum number of times a homeowner can refinance their loan. As long as a homeowner is able to get approval for a refinance loan, he can go ahead. And, applying for past refinance loans generally shouldn’t affect that approval – as long as the homeowner usually has good credit and solid proof of income.
Of course, while you can refinance as often as you want, that doesn’t mean it’s practical to take this financial step very often. There are several reasons for this.
First of all, the truth about refinancing is that it comes with a lot of upfront costs. You will have to pay various fees, including mortgage origination fees, appraisal fees, and other closing costs, which can run into the thousands of dollars.
Now, paying thousands of fees up front can still make financial sense as long as the refinance loan will save you enough to eventually cover the closing costs and leave you feeling better. But if you refinance again too soon after doing it initially, you may not have time to break even on the first set of closing costs before committing a second.
Refinancing also only makes sense when you can lower your interest rate. Although interest rates have fallen, it may take time for dramatic changes to occur. If the rates aren’t much lower than your current loan rate, it wouldn’t make sense to bother refinancing your mortgage.
Since you won’t be paying off your loan forever and it may take years for rates to drop enough to make refinancing worthwhile, there is an inherent limit to the number of times you can refinance. because your debt will eventually be paid off.
Every time you refinance, you can also extend your loan repayment period. For example, if you start with a 30-year loan, pay it off over five years, and then refinance with a new 30-year loan, you’ll reset the clock to get out of debt. If you keep refinancing and resetting the foreclosure, it could end up increasing total costs over time (even if you lower your rate) because you end up paying interest for many more years to come. So you will have to be careful not to refinance too many times in order to avoid this.
Before you refinance, be sure to compare the total costs of your new loan against your old one. And think about how long you plan to hold onto your new loan as well as how much you can actually lower your rate. The answers to these questions will determine whether you should move forward. But the good news is, if you decide refinancing is right for you, there’s no limit to the number of times you can do it that will keep you from moving forward.