Your home may well be one of the biggest purchases you'll make in life. This is particularly true if, like most people, you borrow money to fund the purchase.
While you might plan to live in a home for many years, you might not want to keep your loan for as long as you keep your house. Fortunately, you can refinance loans, replacing your existing loan with a better one. If you've already refinanced, however, you might wonder about the potential consequences of refinancing frequently.
How Often Can You Refinance Your Home?
You can refinance your home loan as often as you want, but it's best to do so only when it makes sense. If refinancing helps you save money and won't create problems, it could be a smart move. However, refinancing costs money, and it may have unintended consequences, so evaluate the decision carefully before moving forward.
When Should You Consider Refinancing?
It makes sense to refinance whenever doing so would make a meaningful improvement in your finances. For example, you might save money on interest costs if you refinance to a loan with a lower interest rate. Over the life of your loan, you could pay tens of thousands of dollars or more in interest — even a modest improvement in your rate can mean significant savings. It's worth shopping around if you can score a lower rate due to higher credit scores or interest rate cuts.
Refinancing can also help with cash flow. Your monthly payment is based on your loan balance, the interest rate and the number of total payments. If you refinance, you may be able to secure more affordable monthly payments. However, your monthly payment is only part of the picture.
There may be other reasons to consider refinancing. Ultimately, it depends on the details of your individual situation.
Pros and Cons of Refinancing
If you're thinking of refinancing, consider some of the potential outcomes — both good and bad — before making a decision.
When all goes well, there are several benefits to refinancing, such as saving on interest charges and improving your monthly cash flow. With those savings, you may have additional funds available to meet your financial or personal goals in retirement. You can also lock in a fixed rate if you're currently using an adjustable-rate mortgage and you're concerned about rising interest rates, or you can switch from a fixed-rate loan to an adjustable-rate option if you think rates will fall.
However, refinancing isn't always the right move. You'll typically pay closing costs to refinance, which can amount to thousands of dollars. Whether you roll those costs into your new loan or pay out of pocket, you're still paying for them, so refinancing may make the most sense when you plan to stay in the home long enough to recoup those costs.
Plus, if you extend the life of your loan, you could pay more interest over your lifetime — even with a lower interest rate. That's because your payments in the early years of an amortizing loan typically consist of mostly interest, and you'll pay more toward the loan balance in later years.
Ultimately, the question might change: How often can you refinance your home without losing ground? Even with closing costs and an extended loan term, you may come out ahead and save money in the long term. Paying down debt aggressively and paying more than the minimum each month can also reduce overall costs in the long term.
The Bottom Line
While there's no limit to how often you can refinance your home, it's still worth weighing the decision carefully. The opportunity to save a substantial amount of money and free up cash flow could lead to a better standard of living or faster progress toward financial goals. However, the process can backfire. Run the numbers with a loan amortization calculator, or ask a financial professional to help you analyze how refinancing might work in your situation.