Death in the family, illness, loss of a job, or divorce can take a great toll on our daily lives and finances. If tragedy strikes and you are unable to afford your monthly mortgage payments and find yourself falling behind, you may be able to modify your home loan to catch up and avoid foreclosure.
How Often Can You Refinance Your Home?
Refinancing your home? You may have heard stories from neighbors, friends, or family members that mention how they refinanced their home multiple times over the years. But how often can you refinance your mortgage, realistically?
Technically speaking, you can refinance your home as many times as you need, as long as it makes sense financially for you. Before you refinance your mortgage for the first time or the third, ask yourself these questions:
Does It Make Sense To Refinance?
Ideally, you should refinance your mortgage only once as refinancing multiple times can decrease the overall financial value you may receive. If your original mortgage was adjustable rate, you can refinance to a lower fixed rate, which will help protect you from future increases in interest rates.
Remember, refinancing does not pay off your current mortgage; it merely changes the current structure of your financing.
How Long Have You Lived In Your Home?
If you have lived in your home for only a year or two, it is typically not a good idea to refinance your home. Since you haven’t lived in your home long, you will not have built up much home equity.
However, you don’t want to wait too long to refinance in order to prevent the mortgage’s amortization from starting over again. This means that when you make a payment, that money will go towards the loan’s interest, not the principal (the original amount of money borrowed from the loan).
Does Your Home Have Equity?
If your home has not built up equity, then you should hold off on refinancing since that equity is used as an asset. If your home does not have any equity built up, you do have the option of utilizing a cash out refinance, an alternative to a home equity loan. Here, you are not taking out a second mortgage but rather refinancing the mortgage you currently have for more than what you owe. Then, you pocket the difference to use at your own discretion. This type of refinance should be used with caution since it can result in higher monthly payments and interest rates and lose equity on your home.
Can You Afford The Fees?
When you refinance your home, you will pay fees much like you did when you first bought your home and received your mortgage. So be sure you will be able to afford them before you refinance. Fees include:
- Closing costs
- Application fees
- Loan origination fees
Your lender will ask you to provide proof of funds and income when you apply for a refinance, including:
- Bank statements
- Credit report
- Payment history
- Employment pay stubs
- Tax returns
- Statement of assets and debts
Is Your Mortgage Almost Paid Off?
If you are close to paying off your mortgage, you will want to hold off on refinancing. Since refinancing is essentially getting a whole new mortgage, you will be extending the life of your loan. Not really something you want to do if you are a few months or a year off from paying off your original mortgage.
As always, before you make the decision to refinance your home multiple times discuss it with your lender and financial advisor beforehand. They will be able to help determine if it is right for you and your current situation.