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How Soon Can You Refinance a Mortgage?

Two Millennials looking at how soon they can refinance their mortgage

How soon you can refinance your mortgage depends on a number of factors, including how much equity you’ve built in your home, what your current interest rate is, what the market interest rates are, the type of loan, and so much more. Nevertheless, the rule of thumb is that a homeowner can refinance within six to twelve months.

The primary motivation of most homeowners looking to refinance is to lower their interest rates. But apart from lowering interest rates, some people may want to refinance for other reasons that we explore below. Whatever the case, let’s discuss how to refinance soon as you can without hitches.

Factors to consider before refinancing

Knowledge of penalties

Besides checking out your credit, it’s a great idea to know if you will have to pay any prepayment penalty. During refinancing, you may target a lower rate, but check out how much you need to pay in fees first. You aim to save more and get benefits from refinancing. You don’t want to go on paying money you should be using for something else. 

Interest rate

Lowering your interest rate should be a major factor to consider before beginning a refinance. Using a refinance method to lower rates attached to monthly payments reduces costs over the life of the loan.

It also makes sense to consider your credit rating and the amortization period of your current mortgage.

When is a great time to refinance your home?

You should consider refinancing your mortgage in any of these scenarios:

  • Expert advice shows that refinancing now is the best option to keep your property
  • Interest rates are much lower than what you have to pay on your current mortgage
  • If you need to shorten your current loan amortization period without incurring massive penalty fees
  • You’ll stay in the property for up to five years

Other situations may prompt homeowners to opt for refinancing. Just make sure your decision to engage in refinancing is backed by solid advice.

How much does it cost to refinance a mortgage?

Refinancing could be expensive at the initial stage for one reason – closing costs. In most cases, closing costs for a refinance include, but are not restricted to:

  • Application fees – charges for checking your credit report, equity, etc.
  • Origination fees – lenders charge an origination fee for setting up the mortgage, post-application checks, and point fees
  • Insurance fees – mortgage insurance fees to cover some losses your lender may suffer due to the loan
  • Attorney reviews fees – for services rendered by attorneys towards conducting closing agreements (not needed in all cases)
  • Appraisal – the lender may require that the borrower get their property reappraised. If that’s the case, add an additional $500 to cover that cost and be sure to prepair so you can get a higher home value from the appraisal.

Homeowners may have to part with thousands of dollars in closing costs to get their desired refi. Let’s say you close a refi on a loan worth about $250,000. Closing costs could amount to about 5% of the loan. That’s about $12,500 in closing costs. But are you keen to avoid paying huge amounts in closing costs? There’s a way out! You can get a no-closing cost loan. Opting for this kind of loan doesn’t mean you won’t pay any closing costs. The money you have to pay adds to the interest owed, causing a slight spike in rates.

How much does it cost to refinance a mortgage?

The price to refinance is usually the application fee that the lender charges. It’s designed to cover their costs for running your credit, reviewing documents, and processing everything. The average cost to refinance a home mortgage in the United States is $2,000-$3,000 – but it can be more if you’re self-employed or have poor credit. On top of this amount, you may also need to pay closing fees that cover charges for administrative work, appraisal, and underwriting. These typically cost $500-$750 but can be more depending on the property. There are other potential costs as well.

Can you refinance immediately after closing?

It’s possible to refinance the day after you close on a home, but it’s not recommended. You’ll need time to settle into your new home and find out how much you owe in taxes and utilities. If you want to refinance right away, consider asking for a temporary reduction in your interest rate so that you can save some money, especially since it could take a long time to refinance a home. How early is too early to refinance? There’s no law that says you need to wait before refinancing. You can do it as soon as you like. While some lenders may want borrowers to wait six months or more, others are willing to refinance earlier than this.

Why do people not refinance?

The biggest reason that people don’t refinance is that they can’t afford the fee. Refinancing costs thousands of dollars, and many homeowners simply aren’t able to part with that kind of cash. In addition, many people think they’re better off staying on their current loan than paying more money every month for a new one. However, this is a bad idea because you’ll pay off your current loan in about 15 years and will have spent $170,000. With the new 30-year mortgage, you’d spend only $167,000 and would still be making payments after 15 years.

Why are people refinancing their mortgages now?

The primary reason why people are refinancing their home mortgages now is to take advantage of low-interest rates. By refinancing, homeowners are locking in a lower monthly payment or even saving money each month. Aside from this, many borrowers are looking for ways to get cash out of their homes. This can be a wise move if you’re paying off your loan quickly and need the funds for something else.

How many times you can refinance?

A homeowner can refinance their home as often as they like, however, each time they refinance, they are restarting their loan from the beginning. This is why mortgage brokers advise clients to switch from a longer loan to a short one. For example, if you’re in a 30 year fixed mortgage and want to refinance after living there 10 years, then a broker may advise to refi into a 20 year fixed so that you don’t start the clock back at 30 years. This is how you build equity in your home.

Another thing to be aware of is that every time you refinance the loan, your credit score will be affected by the new account or line of credit that shows up on your report – and this could affect your eligibility for other loans. Although this credit dip is temporary, it’s still something to be aware of.

Lastly, because lenders take a risk when they review applications, they may deny you the refinance if you’re too risky. Again, this is not a horrible issue but it’s something to note.

Can I get a mortgage after bankruptcy?

Getting a mortgage soon after filing for bankruptcy is possible, but it can be difficult. You’ll need to rebuild your credit score so that lenders view you as a good risk. Combined with not having any serious blemishes on your credit report, this might mean that you’ll need to wait at least a year before applying for a mortgage. Refinancing your home is usually easier when interest rates are low and housing prices have been increasing. This is because when prices go up, more people can afford to refinance, and when interest rates are low, homeowners who would have previously been unable to take advantage of refinancing are now able to do so.

How can I avoid closing costs on a refinance?

One of the biggest benefits of refinancing is that you get to use lower interest rates to reduce your monthly payments. You can also cut costs by refinancing into a shorter-term (such as 15 years) because you’ll end up paying off the loan faster and saving money on interest. Some lenders may offer closing cost assistance, which means they’re willing to pay other fees like an appraisal, inspection, recording, and transfer taxes.

How often will the interest rate on your mortgage change?

For fixed-rate mortgages, the interest rate will never change. For variable-rate mortgages, the interest rate will change according to the terms of the loan. Usually the rate on a variable-rate mortgage will fluctuate once or twice a year. Read your mortgage documents or speak to your loan officer to know for sure. When homeowners say they have a 7/1 ARM, this means they have an adjustable-rate mortgage (ARM) that’s fixed for 7 years and the rate changes 1 time per year thereafter. Another example is a 7/2 ARM, which is also variable but the rate changes 2x per year after the 7th year.

How often is too often to refinance?

There’s no right or wrong time to refinance. In general, you shouldn’t do it more than 1-2 times a year. If you’re refinancing too much, you may end up having to pay various fees and your credit score could be adversely affected by the increase in applications. You should also avoid closing a new loan before your previous one is closed. In general, you shouldn’t have more than two mortgages or loans at one time.

Disclaimer: The above is provided for informational purposes only and should not be considered tax, savings, financial, or legal advice. All information shown here is for illustrative purpose only and the author is not making a recommendation of any particular product over another. All views and opinions expressed in this post belong to the author.

Scott Teesdale

Written By Scott Teesdale

I use data and technology to help Millennials navigate the ins-and-outs of buying or selling a home in today's market. From appraisals to mortgages to zoning, I cover it all with the goal to teach others. Connect with me on social via the icons above.