Credit Risk of Repeat Refinance

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Repeat Refinance Could Ding Credit

Oct 19, 2010 1:35 PM EDT

Dear Dr. Don,
I recently refinanced my home mortgage for 15 years at 4.5 percent with zero points. I now see that the 15-year refinance rate is 3.75 percent and seems to be dropping. Would refinancing again, within three months from the first refinance, affect my credit score?
-Ken Credit

Dear Ken,
The loan application will trigger a "hard pull," or credit inquiry, on your credit report. Credit inquiries initiated by the consumer stay on a credit report for two years, but only impact the credit score in the first year.

You can comparison shop mortgage lenders in a relatively short (two weeks) time period, and that will only count as one inquiry on your credit score because it's clear you're shopping for a mortgage.

I'd worry less about the credit score and more about the cost of serial refinancings. The reason you want a good credit score is to be able to take advantage of a great rate. Your score, all else held constant, will bounce back from any short-term dip caused by the refinancing.

Saving 0.75 percent isn't inconsequential, but you'll pay several thousand dollars in closing costs to capture that lower interest rate. The closing costs on the existing mortgage are a sunk cost and aren't relevant to the refinancing analysis.

A mortgage calculator can help you estimate the monthly payment. In this case, use Bankrate's refinance mortgage calculators to see if refinancing makes sense given how long you plan to be in the house.

There can't be much room left for improvement for fixed-rate mortgages, despite the possibility that rates will trend a little lower if the Federal Reserve starts buying long-term Treasury securities in a much-discussed quantitative easing program.

You can keep your finger on the pulse of the mortgage market by reading Bankrate's Mortgage Rate Trend Index every Thursday. I do, and even have it delivered to me as an e-mail alert along with the Weekly National Mortgage Survey.

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