Should You Refinance Your Mortgage More Than Once?
Refinancing multiple times can be beneficial for several reasons. Below, we’ll look at some situations where another refinance could be to your advantage.
If You Want To Obtain A Lower Interest Rate
You may want to refinance your loan again to take advantage of a lower interest rate. You can almost always save money if you’re able to lower your interest rate without changing the term of your loan.
Just a small change in your interest rate can save you hundreds, or even thousands, of dollars. For example, perhapsyou currently have a 20-year mortgage loan with $150,000 left on your principal and you pay an interest rate of 4.5%.
You have the chance to refinance your loan with the same terms and an interest rate of 4%. If you don’t refinance, you pay $77,754 in interest by the time your loan matures. If you take the refinance, you pay $68,153 total in interest. Lowering your interest rate by just 0.5% means you’ll save $9,601 in interest over the life of the loan.
If You Want To Change Your Loan Term
Income changes can happen at a moment’s notice. If your income has increased, you may want to refinance into a shorter loan term – maybe from a 30-year to a 15-year term – so you can pay your mortgage off earlier. If your income has decreased, you may want to refinance into another 30-year term to lower your monthly mortgage payment.
However, remember that every time you refinance your loan to a longer term, you increase the amount you pay in interest.
If You Want To Eliminate PMI Or Your Mortgage Insurance Premium
Did you buy your home with a conventional loan and a down payment of less than 20%? If so, you’re probably counting the days until you can eliminate your private mortgage insurance (PMI) payment.
PMI is a special type of insurance that protects your lender if you default on your loan. PMI offers you no protection as the homeowner, but you must still pay the recurring premiums as a condition of your loan. When you reach the 20% home equity threshold on a conventional loan, you can ask your lender to cancel PMI if they haven’t done so automatically.
You may also want to refinance from an FHA loan to a conventional loan when you reach 20% equity. With a Federal Housing Administration (FHA) loan, you must pay a mortgage insurance premium throughout the duration of the loan if you have a down payment of less than 10%. However, if you refinance from an FHA loan to a conventional loan, you won't have to pay for your lender’s insurance as long as you have at least 20% equity in your home.
