Refinancing a mortgage can be a strategic move to save money, lower monthly payments, switch loan products, or tap into equity for various financial goals. However, understanding the timing involved is crucial. Determining how soon you can refinance a mortgage depends on the home loan, loan terms, and your specific financial situation.
Often referred to as a “refi”, refinancing a mortgage essentially involves replacing an existing home loan with a new one. Homeowners are sometimes surprised to discover that refinancing doesn't necessarily follow a single set of guidelines. Just as home loan products differ, so do the restrictions and conditions for refinancing. These are standard timelines and conditions for refinancing various mortgage types. Be sure to check with your local lender for full details and information on their home loan products.
Qualified borrowers can usually refinance their mortgage at any point to change the rate and terms of the agreement. This can also be done to convert an Adjustable Rate Mortgage (ARM) into a fixed rate Mortgage. When homeowners have enough equity, they can use what is known as a cash-out refi. This involves replacing an existing Mortgage with a larger one and taking the difference (known as equity) out in cash.
Because conventional loans are privately funded and not always backed by government programs, lenders may employ greater refinancing discretion. However, there may be penalties involved with refinancing too soon. Be sure to check with your Mortgage lender to determine if any penalties exist.
To complete a cash-out refi, borrowers must typically be listed on the home’s title for at least six months.
The FHA insures these home loans to reduce the lender’s risk, which helps buyers with less than perfect credit or those putting less than 20% as a down payment qualify. Lenders generally allow straightforward interest rate-and-terms refinances once certain criteria have been met. Homeowners must wait 210 days (six months) for both rate-and-term and cash-out refinances. However, the number of months differs between lenders so be sure to check with your local lender for details.
To refinance an FHA Mortgage, borrowers must make on-time payments for six consecutive months to be eligible for a refinance.
Home loans offered through the Department of Veterans Affairs (VA Loans) cannot be refinanced until 210 days after closing.
Borrowers must make on-time payments for six consecutive months to be eligible for a refinance.
U.S. Department of Agriculture (USDA) home loans can be refinanced after one year.
Borrowers must make 12 months of consecutive on-time payments to qualify. The number of months varies among local lenders.
The terms and conditions of Jumbo loans are typically established by the lender. Mortgage lenders usually allow homeowners with Jumbo loans to refinance at any point because they are non-conforming. Non-confirming home loans are mortgages that don't meet the guidelines set by Fannie Mae or Freddie Mac.
The requirements for refinancing a Jumbo loan vary between lenders so be sure to ask your local lender for their policies.
When a homeowner realizes they may be eligible for a mortgage with a lower interest rate, it's important to calculate your potential savings. Using a mortgage calculator, you can accurately estimate how much money you could potentially save on a monthly and yearly basis as well as over the life of the loan. If the potential savings outweigh any closing costs or fees, a refinance may be the best solution. Explore the most common refinancing options to determine which may be best for your financial situation.
Rate-and-Term: Considered the most common way to refinance, the initial loan is paid off by one that replaces it. Borrowers usually secure a lower interest rate or alter the length of the loan. Closing costs may also be included in the new loan payment with rate-and-term refinances.
Cash-Out: In some cases, borrowers can use the equity they built to refinance. The transaction involves withdrawing the equity in exchange for a larger loan.
If you're trying to decide when refinancing your mortgage makes sense, it all comes down to cost savings and risk avoidance. Refinancing allows homeowners to secure lower interest rates, change the repayment terms, or change to a new home loan type (For example: adjustable rate to a fixed rate). Homeowners benefit by increasing their overall savings, paying lower monthly installments while extending the loan term, or adjusting their loan type to match their risk tolerance and market conditions.
In other cases, homeowners may leverage a cash-out refi and use the equity for other purposes. For instance, a cash-out refi might make sense if you need cash to pay for a wedding, home improvement, or other emergency expenses.
Take the time to discuss these refinancing options with your local lender to make an informed decision about which option best fits your needs and goals.
A fixed rate mortgage offers borrowers a consistent monthly payment over the life of the loan. People who prefer the comfort of unchanging mortgage payments may gravitate toward fixed rate options. In terms of refinancing, it’s not unusual for homeowners to refinance an ARM to a fixed rate product. This type of refinance may make sense if rising interest rates cause your monthly payment to increase.
ARM home loans usually provide lower initial interest rates than their fixed rate counterparts. After that grace period ends, interest rates follow federal lending indexes that may cause them to increase or decrease. It’s not uncommon for homebuyers to secure an ARM and refinance when the grace period ends.
When it comes to choosing the best mortgage refinancing option to fit your needs and lifestyle, it’s best to work with a lending professional like one of our Mortgage Specialists. Our mortgage team will listen to your needs and goals, and offer refinancing solutions that can help you achieve your financial goals.
Now that you know how soon can you refinance a mortgage, to help ensure that you are prepared, download our free checklist "Refinancing Your Mortgage: A Comprehensive Guide to Help Leverage Your Home's Value"
