When should you consider refinancing?
There's no preset number of times you're allowed to refinance; you can do so as many times as it makes sense given your financial situation. However, if you've recently signed your mortgage, you may need to wait a bit as generally, your existing lender won't let you refinance in the first six months. That said, some lenders will waive that waiting period, so if rates have dropped significantly since you closed on your home, or your credit score has improved tremendously, it pays to contact your lender and see whether refinancing is possible.
Another option is to refinance with a different mortgage lender. Many lenders will let you refinance even if you recently signed your mortgage with another company. You're more likely to snag a great offer if you shop around to find the best mortgage refinance lenders.
If you're interested in a cash-out refinance, you'll generally need to wait at least six months from when you originally closed on your mortgage, regardless of whether you're using the same lender or a different lender. With a cash-out refinance, you borrow more money than what you owe on your existing mortgage. You can then use that cash for any purpose -- home improvements, paying down debt, or even taking a vacation.
If you want to refinance an FHA loan with an FHA Streamline Refinance (a program in which your original FHA loan paperwork is used to process your refinance, thereby expediting the process), you'll be subject to a 210-day waiting period. Also, if your original mortgage was already modified to make your payments more affordable, you may need to wait up to two years to refinance it.
Does it pay to refinance soon after closing on a mortgage?
When you refinance, you're subject to closing costs in the same way as when you sign an original mortgage. If you refinance too often, you'll keep paying those closing costs. But in some cases, it may be worth it.
Imagine your credit score has improved in recent months, while mortgage rates have fallen simultaneously. If you're able to lower your interest rate by a full percentage point or more, then it could easily pay to refinance -- even once you've covered those closing costs.
It could also pay to refinance shortly after closing on a mortgage if your home value has climbed substantially since you finalized that loan and refinancing allows you to get rid of your private mortgage insurance.
Ultimately, though, you'll need to make sure you plan to stay in your home long enough to reap the benefits of a mortgage refinance. If your refinance costs you $4,000, but you're able to lower your monthly mortgage payment by $200 a month, it will take you 20 months to break even. If you're confident you'll be staying in your home for another 29 years until your mortgage is paid off, then refinancing makes sense, because you'll come out way ahead financially in the long run.
Don't rush to refinance
Tempting as it may be to refinance soon after closing on your mortgage, make sure you're doing it for the right reasons. Don't chase small interest rate drops -- if refinancing means going from a rate of 3.755% to 3.50%, it's probably not worth it. But if you can go from 7.9% to 7.0%, that could be worth the effort. Regardless of the rates when you're considering refinancing, wait until you have a chance to capitalize on a substantial rate reduction before applying to refinance.
Still have questions?
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