Although the coronavirus pandemic has dealt a devastating financial blow to millions of U.S. households, there’s at least one silver lining: mortgage rates have tumbled since March, making now a great time for some homeowners to refinance.
If you've already refinanced your home in recent years, you may have doubts about whether you should consider another one. Don't worry, you can refinance your home more than once — the question is whether it makes sense for you to do so right now.
Here's everything you need to know as you consider another mortgage refinance.
What are today's mortgage rates?
Before you consider another refinance, you're going to want to look at the latest interest rates.
Mortgage rates recently dropped below 3% for the first time ever. On August 27, the average rate for a 30-year fixed mortgage dropped to 2.91%, compared to 2.99% the week prior, according to Freddie Mac. The rate for a 15-year fixed mortgage also dropped from 2.54% to 2.46% in the same time period.
You can explore your mortgage refinance options by visiting Credible today to compare rates and lenders.
How many times can you refinance your mortgage?
If you’ve refinanced your home in the past, you may be wondering how many times you’re able to refinance a mortgage.
The simple answer is there’s no cap on how often you can complete a mortgage refinance—unless you’re applying for a streamline refinance on a Federal Housing Administration (FHA) or Veteran Affairs (VA) loan, in which case at least 210 days must have passed from your closing date and at least six months since the first payment was due in order for you to qualify for a new FHA or VA loan.
Comparing rates and fees from various lenders will save you money. You can plug your information directly into Credible's free online tool to find your loan amount.
Still, there are some important factors to consider before refinancing your home loan a second or third (or fourth) time.
Should you refinance your mortgage multiple times?
If your mortgage rate is more than one percentage point above current rates, it usually makes sense to refinance, experts say. But whether you can benefit from refinancing truly boils down to when you plan to sell your home and how long it would take for you to recoup your closing costs.
Closing costs for refinancing usually run between 3 percent and 6 percent of your new loan amount. So, let’s say you have a $300,000, 30-year, fixed-rate mortgage at an interest rate of 4.4 percent, and you’re making a mortgage payment of $1,688 per month in principal and interest. If you refinance to a 30-year loan with an interest rate of 3.0 percent and closing costs of 3 percent, you’d reduce your mortgage payment to $1,303, which would save you $385 per month—enabling you to break even and begin saving after a little more than three years.
Another thing to consider: every time that you refinance, you reset the clock on your home loan. For instance, if you have 20 years left on a 30-year mortgage, and you plan to refinance to another 30-year loan, it would take you another 30 years to pay off your home, assuming you don’t prepay your mortgage or pay on a biweekly schedule.
On that note, some home loans have a prepayment penalty—i.e., a fine charged against you by the lender of your mortgage if you pay off the loan before its life is up—that may be triggered if you refinance your mortgage. Therefore, if your loan has a prepayment penalty, you’ll need to factor that in when assessing whether to refinance your mortgage.
Also, in these times of economic uncertainty, it’s important to take a sober look at your job security before refinancing your mortgage. Read: If your industry is experiencing widespread layoffs in light of COVID-19, or if your employer is struggling financially, you may not be in a stable position to cover the closing costs of refinancing.
You should also consider your credit score. Generally, the best refi rates only go to borrowers with credit scores of 750 or higher.
Shop for the best refi rates
Comparing refi loan offers from multiple lenders could save you hundreds, or even thousands, of dollars over the life of your new loan. Borrowers save an average of $3,000 over the life of their mortgage by getting five quotes, Freddie Mac research found, yet more than three out of four borrowers (77 percent) only apply to one lender when getting a mortgage, according to a study by the Consumer Financial Protection Bureau (CFPB).
Need a little help hunting for the best mortgage rates and loan terms? Use Credible's free online tools to compare mortgage companies and get prequalified rates from lenders in as little as three minutes.