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With attractive refinancing rates being constantly advertised, the appeal of refinancing your home mortgage may be causing you to think about your options. However, if you’ve already refinanced in recent years, you may be wondering if refinancing multiple times can hurt your credit.

Although financial experts sometimes disagree, the general consensus seems to be that, while the act of refinancing your home multiple times won’t directly affect your credit negatively, the results of such actions certainly can.

Consider the following scenario. You finance a brand new car, trade it in two years later, refinance another car then trade it in two years later and repeat this process every two years. Eventually, you’d owe $50,000 on a car worth only a fraction of that amount. When you refinance your home several times, you run the same risk of becoming “upside-down” on your mortgage (owing more than your home is actually worth). In addition to your actual principal, the closing costs and associated fees of each refinance are also usually rolled into your total balance, further increasing your financial burden and risk of default. Then, if you get behind on your mortgage payments, credit card payments and other debts, your credit can spiral downward very quickly.


When Refinancing is a Good Idea

All that being said, there are countless homeowners who have refinanced their mortgages two or even three times over the course of 10 to 20 years and have seen no ill effects to their credit or finances. As a matter of fact, a couple of wisely constructed refinancing deals can save you a lot of money over the long run, so it pays to do your research when the interest rates are low and the market is suitable for refinancing.

Refinancing can be a good idea for many reasons, including helping you save money with a lower, fixed interest rate as well as making monthly payments more manageable by stretching them out over an extended loan term. The best way to find out if refinancing is best is to crunch the numbers before you sign any paperwork or even fill out any applications (as too many inquiries can reduce your FICO score). Compare rates among lenders, and be sure to account for closing costs and fees, as these will increase the amount the loan will cost you.

For example, say you have a $250,000 30-year fixed mortgage at 6.5% and your monthly payments are $1,800. If you can secure a 30-year fixed mortgage at 5.5%, your payments would drop $380 a month to about $1,420 a month. That’s a big savings for most people and one that is worth a refinance. The general rule is that you should never refinance for a rate that is less than 0.5% better than what you have now, since the benefits won’t outweigh the costs.

Related Stories:

How to Know When Refinancing Makes Sense

When to Refinance and When to Sit Tight

The Smart Way To Use Adjustable-Rate Mortgages

— For more ways to save, spend, invest and borrow, visit MainStreet.com.