Property Refinancing 101: When, Why, & How to Refinance

Frequently Asked Questions

• 1. How many times can I refinance my property?

  There is no legal limit on how many times you can refinance a property. In theory, you can refinance whenever you qualify, and when doing so supports your financial goals. Your ability to refinance is ultimately dictated by lender requirements, closing costs, and market conditions. However, there are certain restrictions. 

  The main restriction is the seasoning period — the minimum amount of time you (a borrower) must wait out before refinancing an existing loan. The required waiting period varies by loan type and lender. For example, conventional rate-and-term refinances may have little or no mandatory waiting period. Cash-out refinances and government-backed loans set up a waiting time of several months and require you to demonstrate a history of on-time mortgage payments.

  So for residential homeowners, the limit is more on the frequency of refinancing, rather than your total number of refinances. Commercial real estate and investment properties are a completely different thing. 

  Investors may want to re-invest in existing property multiple times to expand their real estate portfolio and keep business running. For instance, they commonly refinance properties after scaled occupancy, renovations, or improved management. 

• 2. What refinancing closing costs must I cover?

  Refinancing a property is not free, and you should prepare for a bunch of closing costs. Like obtaining your original mortgage, replacing an existing loan costs fees — lender, third-party, and government ones. In most cases, these closing expenses total 2% to 6% of the new loan amount. The exact amount depends on the type of property, loan program, lender, and location. 

  To break it down in detail, the full range of closing costs you may be required to cover includes:

  • Loan origination fee (Lender’s charged for processing and issuing the new mortgage)
  • Application and underwriting fees (Payment for the review of your income, credit history, assets, and loan documentation)
  • Property appraisal fee (If you haven’t yet, you will need to conduct a professional valuation of the property to help the lender understand its current market value and loan-to-value ratio)
  • Title search and title insurance (Payment for verifying that the property’s title is clear of ownership disputes or liens; plus the insurance to protect the lender’s interest in the property)
  • Credit report fee (The cost of reviewing your credit history during the underwriting process)
  • Recording and government fees (A charge by local authorities to record the new mortgage and update public records)

• 3. Can I refinance property with the same lender?

  Yes. Furthermore, it’s a common choice for homeowners and real estate investors to use their current lender for refinancing. It may as well be the most convenient way — the institution already has your mortgage history, payment records, and much of the financial info that you need to process the new loan. This can speed up the application process by using less paperwork. It can also increase your overall chances for loan approval.

  Some lenders even encourage refinancing for existing customers, offering discounts on certain fees and streamlined refinancing options for sticking with them. But keep in mind, staying with your current lender does not automatically guarantee the best interest rate or loan terms for you. Every other lender issues their own mortgage rates, origination fees, discount points, and closing costs. It’s important to calculate your mortgage loan specifics individually. 

  Better yet, before applying for a refinance loan from your original lender, get loan estimates from several available lenders. Compare offers side by side, specifically:

  • interest rate
  • annual percentage rate
  • lender fees
  • closing costs
  • repayment terms
  • prepayment penalties (if any)

  If your current lender offers better conditions across the board, then surely it’s an optimal option. 

• 4. When should I not consider refinancing a property?

  The most common reason to avoid refinancing is when the costs outweigh the benefits. Can you handle those appraisal fees, lender charges, title services, and other closing costs? And if you can, is it viable at all in the long term? When considering a refinancing, make sure to calculate your savings’ potential against all the formal closing expenses. 

  It’s also best to refinance after you have reached a break-even point in your mortgage. Otherwise, the sole refinancing procedure may only add to the total mortgage cost. 

  Another consideration is the loan term. Borrowers tend to refinance into a new 30-year mortgage to cut their monthly payments. But while this can improve short-term cash flow, the total interest you pay over the life of the loan can increase, especially because the repayment period begins again. In some cases, the lower monthly payment comes at the expense of paying interest for many additional years. 

  Cash-out refinancing also deserves careful consideration. Yes, it gives you access to home equity, but it also increases the loan balance and may result in higher monthly payments or greater long-term borrowing costs. So if the funds you borrow aren’t used for value-adding renovations or high-interest debt repayment, the extra debt may outweigh the refinancing benefits.

• 5. Does refinancing affect my credit score in any way?

  Yes, but for an average borrower the post-refinancing impact is only small and temporary. See, when you apply for a refinance, the lender must perform a hard credit inquiry, which may lower your credit score by a few points. Once the refinance closes, your existing mortgage is paid off, and a lender opens a new loan account. These changes can slightly affect your credit history due to two reasons:

  1. the average age of your accounts is reduced
  2. a new credit obligation is created, adding to the history

  Fortunately still, these effects are usually short-lived. Payment history is the largest factor in most credit scoring models, so if you make consistent on-time payments on your new mortgage, your credit score will recover in about several months. In other cases, refinancing may even boost your financial profile over the long term, that is, if it beneficially lowers your monthly payment and makes it easier to manage your overall debt. 

  One big pro tip to minimize the impact on your credit — don’t apply for other forms of credit, such as credit cards or auto loans, while your refinance application is being processed. Your refinance approval hinges on your financial predictability, so it’s best to keep finances stable for the meantime.