How many refinances are you allowed during a pandemic?

There’s no limit on mortgage refi's, but long-term savings need to be greater than up-front costs.

Paul and Laura DePerry shaved $260 off the mortgage payment for their Rancho Santa Margarita home when they refinanced last March. Their interest rate dropped to 3.63% from 4.25%.

Then the pandemic hit, and mortgage interest rates fell to record lows. This week, the DePerry’s locked in another $240-a-month savings with a new rate of 2.88%, paying about $3,200 in closing costs.

In total, their payment fell $500 per month after cutting their interest rate by almost 1.4%.

“It makes me feel ecstatic,” Paul DePerry said.

What if rates fall further? Could the DePerry’s go for a trifecta? How many times can you refinance your mortgage?

There are no legal limitations.

But there are a lot of lender fake-outs and roadblocks that might make it harder for you to become a true serial refinancer.

Among them:

Added costs: Fannie Mae and Freddie Mac announced plans to add a one-half point fee (that is, 0.5%) for any refinance, effective Dec. 1.

With the lag time it takes to get loans approved, that fee could be charged for all loans launched as early as September or October.

Even if there’s enough time to get your loan approved by Nov. 30, some lenders still may charge that adverse market fee.

Lender refusals: A second roadblock is something called EPO, or early payoff.

That is where your lender may not be able to offer you a re-do for four, six or as much as 12 months after your closing because the company advanced money to cover loan originator compensation or closing costs in exchange for a higher interest rate. These are known as zero-point or zero-cost loans.

In those cases, if you re-do your mortgage with any lender, or even sell your property, the lender may get a big claw-back bill from Fan or Fred for those advanced fees. So, they have a timeout that you are strongly encouraged to participate in.

Some originators make borrowers sign a pledge that they will not refinance for a certain amount of time or require them to reimburse the originator for its lender bill.

The Dodd-Frank Act of 2010 banned any type of prepayment penalty for first loans on owner-occupied or second homes.

Qualifying: A third roadblock is much tougher underwriting.

For example, did you go into forbearance and skip payments? Is your industry at further risk of a meltdown such as airlines, retail businesses and the like? Is your self-employed income declining from last year?

The Wall Street Journal reported last Tuesday, Aug. 25, that some lenders are requiring borrowers to sign documents pledging that they don’t intend to seek forbearance on their new loan.

The good news is plenty of lenders are temporarily rescinding the adverse market fee. Separately, May data indicates 40% of all mortgages going to Fannie and Freddie are getting appraisal waivers, according to Ed Pinto of the American Enterprise Institute. That’s about a $600 reduction in your refinance costs.

Before calculating whether to refinance your own mortgage, be clear what you’re trying to accomplish. Do you want to shorten your term, lower your mortgage rate, or pull out cash?

Then do the math.

How much is it going to cost you? For example, most borrowers will refinance into a lower rate if they can save $100 or more per month without any points or fees.

If you are paying closing costs, how long will it take to recoup your cost? For example, let’s say you are currently at 3.75% on a $400,000 loan and your payment is $1,852.

You can get 2.875% without points, but you will have to pay $3,500 in closing costs. Assuming you add your settlement costs to the new loan amount, your new payment would be $1,674 a month on a $403,500 loan. Your savings is $178 per month.

Divide $3,500 in costs by $178 in payment savings. It will take about 20 months to recoup the cost.

Separately, do you have the stomach to subject yourself to the normally intrusive financial dive that has just gotten worse, thanks to more potential COVID-19 related job cuts and income losses?

The Federal Housing Finance Agency projects at least $6 billion in losses for Fan and Fred, and it could be worse. So, the adverse market fee could increase further. Or, worse, refinance lending could come to a standstill.

Refinance only if it makes sense for you. Is a trifecta in your future?

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Jeff Lazerson - Mortgage Columnist since 2011