Mortgage Rates Dropped to 3.04% Last Week. How Soon Is Too Soon to Refinance Again?

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Mortgage rates dropped another 0.02% last week, down to 3.04% and inching closer to when rates hit 3% in February. Low interest rates have homeowners wondering how soon they can refinance again.
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The average 30-year fixed mortgage rate dropped last week by 0.02%, taking it down to 3.04%. That’s the second week in a row that rates have dropped, taking them closer to when they hit 3% in February.  

While these low rates can help aspiring homeowners seeking a mortgage loan, they could be overshadowed by increasing home prices thanks to a shortage of homes and high demand. High home prices could eat into the savings that come with getting a lower rate, making it more difficult for buyers to find a home that fits their budget. 

On the other hand, existing homeowners can benefit from this low-rate environment by  refinancing an existing mortgage. Refinancing can bring many financial benefits, such as lowering monthly mortgage payments, shortening loan terms, freeing up monthly cash flow, or getting rid of private mortgage insurance (PMI). With the potential benefits and mortgage rates at historic lows combined, some homeowners might even be tempted to consider refinancing again to lower their rate even more. 

Technically, you can refinance as many times as you like, but how soon is too soon? Here is more information on the benefits and how to know if it’s too soon to refinance again. 

ABOUT THE LATEST MORTGAGE RATES

Last week’s average mortgage rate is based on mortgage rate information provided by national lenders to Bankrate.com, which like NextAdvisor is owned by Red Ventures.

The Benefits to Refinancing 

Consider this refinance example to see its monthly and full-term financial benefits. 

  • Home purchase: $200,000
  • 10% down payment
  • 30-year mortgage
  • 4.50% on the $180,000 you borrowed (after down payment)

If you’ve been paying the loan for three years, you’d have a loan balance of roughly $171,000, according to the NextAdvisor mortgage calculator. A new 30-year refinance loan at 3% would lower your monthly payment by $192 and save close to $36,000 in interest over the life of the loan. 

Loan BalanceInterest RateMonthly Principal and InterestTotal Interest Remaining
Current Loan$171,0004.50%$912$124,630
Refinance Loan$171,0003%$720$88,749
Difference 1.5%$192$35,881

How Soon Is Too Soon to Refinance Again? 

It Depends on Your Loan Type

Most loans do not have any restrictions on how many times you can refinance. However, this can vary depending on the type of loan you are paying off and the type of loan you are looking to obtain. For instance, most conventional loans require a six-month waiting period after purchase before another refinance. While there are exceptions, you’ll want to check with your lender to see what makes sense and is possible for you. 

It’s also a good idea to check your existing loan’s terms to make sure there are no prepayment penalties. And because of the closing costs associated with refinancing, you’ll want to make sure you’ve considered the break-even point on your existing mortgage loan if you’ve already refinanced previously. 

Breaking Even Matters

Before reaching any final decisions, it’s good practice to figure out how long it will take for you to break even with a new refinanced loan. The break-even point refers to the time period it will take for your monthly savings to exceed the cost of the new loan. You can figure out your break-even point by taking the dollar amount of fees associated with refinancing and dividing it by your monthly savings. The break-even timeline can be determined using this equation: 

Closing costs / monthly savings = break-even period (in months)

For example, if closing costs equal $2,400 and you save $200 per month on the new loan, your break-even point would be 12 months.

$2,400/$200=12 months

When deciding to refinance again, consider the loan you currently have. If you haven’t reached the break-even point on your current loan, you may want to reconsider waiting until the break-even period has ended. If not, you will be extending your break-even period even longer by adding a new break-even period to an existing one.

Is It Worth It to Refinance Again?

Generally speaking, you’ll want to keep your home until you’ve at least reached the break even point. So if you’re planning on selling the house soon, it may not be a good idea to refinance. The longer the break-even point, the greater chance there is that your financial circumstances may change, causing you to sell the home before fully realizing the savings of a refinance.