Refinancing Your Home Loan: How Often is Too Often?

Home loan refinancing can be a handy way for borrowers to manage a mortgage and keep within budget. With a refinanced home loan, it’s possible to save money over the length of your loan by getting access to lower interest rates and helpful features. 

Borrowers who feel like refinancing could be right for them might be wondering how often they can do it. In fact, some borrowers may ask whether refinancing often is a good idea, or even allowed at all. To help answer that question, this handy little guide will explain the ins and outs of refinancing and give an idea about how often a borrower might want to refinance.

Basically, refinancing is the process of switching home loans by paying down an existing home loan and taking out a new home loan. Any equity that was built up from the deposit, regular repayments, and fluctuating property values is taken into account when the new loan-to-value ratio is calculated for the new home loan. Borrowers who refinance with more equity can generally find that they have access to lower interest rates from lenders. 

Sometimes, due to fluctuations in market price, a borrower can find their equity lower or higher. This is important as lenders usually require 20% equity for borrowers who want to refinance. Borrowers who refinance with equity lower than 20% will have to pay lenders mortgage insurance (LMI).

Refinancing also has a number of benefits that borrowers can access when they open their new loan such as:

• Cash out refinancing: This allows borrowers to access the equity in their home by taking out a larger loan than the existing one. The surplus cash can be used for various purposes like home improvements, paying off debt, or major expenses.
• Cash back refinance offer: Some home loan providers will offer cash bonuses for refinancing your home loan. They can vary depending on the provider with some lenders offering cash back offers of up to $3000.
• Debt Consolidation: Borrowers who have high interest debt like credit cards can refinance to a larger loan. Generally, home loans have a lower rate than most other kinds of debt with the average variable rate home loan on the Mozo database sitting at 6.59%.

There aren’t really any set-in-stone rules about how often borrowers can refinance their home loan. 

Although, one thing to keep in mind when refinancing is that a borrower's credit score can be affected, although this is only temporary. This can affect a refinancer as lenders will run a credit check. Depending on the credit score, a borrower could end up with a higher or lower interest rate.

So, borrowers looking to refinance frequently should keep a couple of things in mind when searching for a new home loan. This could include their:

• Credit Score: A higher credit score can help you to secure better interest rates. It’s generally affected by your history of borrowing and repayments.  
• Home equity: The more equity you have in your home, the better your chances of qualifying for refinancing. Lenders often prefer borrowers who have at least 20% equity, although if you do refinance with less equity or take cash out, you could find yourself paying lenders mortgage insurance. 
• Interest Rates: Generally, it's advantageous to refinance when interest rates are lower than your current mortgage rate. It can be helpful to compare your current loan with refinance offers.
• Lender's Policies: Some lenders may require that the borrower waits a certain period before refinancing.
• Existing debt: The amount of existing debt you currently hold is also a factor that banks will keep in consideration.

There are quite a few reasons why a borrower might want to refinance their home loan. The most common are lower interest rates which can translate to lower monthly payments and overall interest repayable.

When refinancing a loan, mortgagors can find that there are some helpful features their old lender didn’t have. These could include free extra repayments, offset accounts, and flexible repayment options. These tools can help borrowers to save over the course of their loan or better manage their finances alongside their loan.

Refinancing can also mean more flexible loans, allowing borrowers to change between fixed rate, variable rate, and split rate home loans—just keep in mind that refinancing a fixed rate loan before the agreed upon term can mean paying break fees. 

One disadvantage of refinancing is the costs involved. These could be discharge fees, application fees, property valuation, and settlement fees.

Borrowers should also be aware that frequent refinancing could mean that lenders will view the loanee as a less reliable stream of income as they jump ship frequently. 

Also, while cash out refinance, debt consolidation, and adjustable loan terms can be handy, they can potentially cost borrowers more over the course of their loan. The reason why is that borrowers could end up paying more in total interest over the life of the loan as they’re spreading the debt over a longer period of time.

When refinancing a home loan, borrowers should consider the process of application and approval. One reason is that lenders will generally require things like documentation, proof of ID, and regular repayments. 

Generally, the home loan refinancing process involves: 

• Pre-approval: An initial review of your creditworthiness to estimate the loan amount you may qualify for.
• Loan application: Submitting a formal application for a new mortgage, where the borrower's application, credit history, and financial situation are reviewed.
• Appraisal: An assessment of the home's market value to determine how much the lender can offer and whether your equity has risen or fallen.
• Settlement: Finalising the new mortgage, paying off the old loan, and starting the new one.

Generally, refinancing makes sense when a borrower's loan is no longer competitive—meaning that other lenders are offering loans with lower interest rates, fees, terms, or features. This could be because the cash rate was hiked, your financial situation has improved, or you want to switch between variable, fixed, or split rate mortgages.

• Home Equity Loans and Lines of Credit: These allow homeowners to borrow against their home's equity without replacing their existing mortgage.
• Reverse Mortgages: Senior homeowners (usually 60 and above) can access the equity in their home in the form of a loan paid out as a lump sum or a regular stream of cash.  
• Negotiating with the current lender: Some borrowers can come to an agreement with their current lenders to change the terms of the loan. Some lenders will even allow you to adjust the frequency of repayments online. 
• Selling the Property: If refinancing costs don't make sense, selling and purchasing a more affordable home may be an option.

While refinancing can be a helpful financial tool, frequent refinancing should only be done after careful consideration. Refinancing without sufficient equity can land borrowers with higher interest rates, and frequent refinancing could affect someone's ability to borrow in the future.

Borrowers who aren’t sure if they’ve got the loan that’s offering them suitable rates, features, and terms, might want to check out our home loan refinance comparison tables. Regularly comparing a loan against other providers can be helpful when borrowers consider refinancing.