Can You Refinance Your House Multiple Times?

Refinancing is a wonderful tool available for homeowners. Basically, a refinance is a renewal of loan terms on the same property. For homeowners who have been making repayments on their mortgage for many years, an equity balance that tilts strongly in their favor allows for a favorable new loan that they can use to cover the cost of home renovations, unexpected medical expenses, or college tuition (among many other financial requirements).

Refinancing can take advantage of a new, lower market rate — reducing your total mortgage bill over the remaining years of repayment — or extracting equity for new purchases or projects. In addition, Rocket Mortgage notes that there is no limit to the number of times your can legally (or theoretically) refinance your mortgage. As a result, homes offer a great asset to draw from financially during times of strain or change or as a boost to fiscal mobility during periods of prosperity.

However, lenders will always bring their own rules and regulations to the table with mortgage loans and the opportunity to refinance. Most importantly, lenders likely won't allow you to take advantage of refinancing if your equity in the property is too low. As a rule of thumb, they tend to allow borrowers to refinance up to 80% to 90% of their loan value, Rocket Mortgage says.

Refinancing opportunities are built on strong fundamentals within your overall financial circumstances. Lenders want to see a good equity distribution and long-running payments on the initial mortgage loan (or previously refinanced loan). As noted by Rocket Mortgage, a lender will typically only consider you for refinancing if your loan-to-value ratio sits under a ceiling of about 90%. In rough terms, this means you need more than 10% equity in the property and typically will want a significantly higher figure to justify the origination fees and other expenses associated with this new loan.

Bankrate also notes that refinancing essentially replaces an existing mortgage with a new loan. This is an important distinction to make when considering loan options available to you. You can access a new mortgage refinancing opportunity through your existing mortgage lender or with a completely different bank or financial institution. The process for funding is virtually unchanged from the initial mortgage application, though.

Refinancing can help you extract equity out of your home and can be used to start your repayment clock over again. After paying off a chunk of your mortgage, for instance, you may consider refinancing the existing loan in order to shorten the remaining time left on the debt to reduce your interest costs. Alternatively, you can extend the loan term to cash out some of your equity while reducing ongoing monthly contributions.

Bankrate reports that most refinancing is done in an effort to reduce the interest rate associated with a homeowner's mortgage loan. A change in your interest rate (with the same repayment length) can lead to savings — or an increase in overall money owed — in the neighborhood of thousands of dollars.

When changing both the repayment duration and interest rate, the compounded savings can be immense. With shifting federal rates and a constant fluctuation in the commercial marketplace, it's a good idea for virtually all homeowners to understand their personal break-even figures in terms of origination fees and other closing costs while keeping an eye out for a great refinancing deal.

The Mortgage Reports notes that a 1% decrease in a loan rate (from 3.75% to 2.75%, in the example given) can save $250 per month on a typical $250,000 mortgage loan. Reducing the amount you have to pay each month is a great tactic for anyone seeking to free up additional cash for routine living expenses or as a recourse for paying down the mortgage faster. In addition, this reduction can give you an added $250 (or whatever you can save in your own refinancing efforts) to put directly toward the balance on your mortgage, quickly minimizing the total owed.

Another great approach to using a refinancing opportunity to your benefit is through strategic upgrades to the property. Investing in your home is a great way to create a more luxurious and functional living space. Renovations help keep a house's style and the utility modern and fresh while adding financial value to the home.

Refinancing your mortgage loan to extract capital allows you to pay for updates to the residence with the value of the home itself. These changes immediately improve upon the underlying value, making a remodel effectively pay for itself with efficient planning and strategic modernizations that target areas that bring in the best return on investment, like an attic bedroom conversion, minor bathroom update, or kitchen remodel, Fortune Builders notes.

Refinancing requires a dedicated calculation, and it won't always make sense to use, Rocket Mortgage explains. However, when you've built up a good deal of equity in the property and are thinking of refreshing the home, a refinance might be the perfect opportunity to pay for a major update for essentially just the interest and closing costs. Suppose you renovate the house with quality returns in mind. In that case, you may be able to add the same amount of value you are spending (or even make a modest gain on the alteration), endeavoring something closer to a break-even transaction rather than a new and fiscally significant personal loan.