Does a Prior Mortgage Refinance Affect This One?

June 9, 2003 When interest rates drop, some homeowners who had refinanced earlier are discouraged from refinancing again, for reasons that make no sense. "How long do I have to wait before I can refinance again? I was told a year." Not so. I have never heard of a law, regulation or loan contract that establishes such a limit. Of course, lenders hate serial refinancing with a passion, but it is a cost of doing business. While loan contracts may discourage refinancing with a prepayment penalty in jurisdictions where such penalties are allowed, that is a different issue. "We refinanced 6 months ago to a fixed-rate loan for 30 years at 6.125%. My loan officer just called me to say that he can give me a 5.75% rate with no closing costs. I�m tempted but I have already paid 5 months of the term and am reluctant to give that up. Am I right?" No, you aren�t giving up anything. What you accomplished in the 5 months is a reduction in the loan balance equal to the 5 principal payments you made. If you refinance, it will be on this lower balance, so your savings remain intact. It is true that if you refinance into another 30-year loan, you will be staring at 360 new payments. Lenders won�t write a loan with a term of 355 months. That is easily remedied, however, by making a small increase in your monthly payment. The increase is $3.09 for each $100,000 of loan amount, which I found using my calculator 2c. You might want to pay off even earlier by making the same payment at 5.75% that you were making at 6 .125%. Calculator 2a indicates that if you do that, you will pay off in 326 months. "I have an opportunity to refinance from 5.625% to 5.25%, but I paid $4500 to refinance just 8 months ago. If I refinance now, I will lose money on the previous refinance because the $4500 is more than my savings over 8 months. I would like to wait until my last refinance is in the black but I�m afraid that interest rates will go up and I�ll lose my chance. What do you recommend?" I recommend you forget about your $4500 because it is gone. Use my calculator 3a to determine whether or not it pays to refinance now. You will notice that the calculator, before it can provide an answer, must be given information about a number of things, including the interest rates on your current and new loans, and the points and others costs of the new loan. But the costs you incurred on your previous refinance are not there, because they are irrelevant to whether you should refinance again. Copyright Jack Guttentag 2003

Jack Guttentag is Professor of Finance Emeritus at the Wharton School of the University of Pennsylvania. Visit the Mortgage Professor's web site for more answers to commonly asked questions.

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