How soon can you refinance a mortgage — and when is it wise?
How soon you can refinance your mortgage depends on your loan type and lender’s requirements. Some mortgage programs (such as conventional and FHA) allow rate-and-term refinances immediately, while others require a waiting period (210 days for VA loans, for example). Expect to wait 12 months for a cash-out refinance.
If you recently got your mortgage and are less than thrilled about the interest rate or other terms, you may be looking to refinance as quickly as possible. While refinancing your mortgage can potentially improve your loan terms and save money, it comes with closing costs (typically 2% to 6% of the loan amount). And with current interest rates at elevated levels compared to recent years, moving to a lower-rate mortgage may be challenging.
However, other factors may warrant a refinance, such as a change in financial circumstances or accessing home equity. Before refinancing your mortgage, familiarize yourself with the waiting timelines, benefits, drawbacks and costs.
How quickly you can refinance your mortgage varies by loan program and lender:
In addition to observing waiting periods, you may have to meet minimum income and credit requirements and a maximum loan-to-value (LTV) ratio — your mortgage balance compared to your home’s value.
How to estimate your LTV ratio: Use Fannie Mae’s free calculator to see if you have enough equity in your home to refinance. (Lenders typically restrict eligibility to borrowers who have at least 20% equity.)
Refinancing a modified loan or one in a forbearance program may have additional guidelines. Once you’ve met your loan requirements and entered the underwriting process, closing on a refinance loan can take 30 to 60 days, but the true timeline varies.
Conventional loans are mortgages that aren’t part of a federal loan program, such as FHA, VA or USDA loans.
Mortgages backed by the Federal Housing Administration are called FHA loans. Refinancing FHA loans can be more complex than refinancing conventional loans. The FHA offers multiple refinance programs, each with unique timelines and guidelines:
FHA cash-out refinance: Existing and non-FHA borrowers can refinance and tap equity (assuming you have more than 20%). You must have owned and lived in the property for the past 12 months.
If you have a mortgage balance, you must have had it for at least six months and made on-time mortgage payments for the past year or as long as you’ve had the loan (if less than 12 months). Plus, you must retain 20% equity in the property after the refinance.
The US Department of Veterans Affairs (VA) offers refinance (and purchase) loan programs to service members, veterans and eligible spouses. VA refinance rates are competitive with other refinance programs.
The US Department of Agriculture (USDA) offers three refinance programs to existing borrowers: streamlined, streamlined assist and non-streamlined. Two programs don’t require an appraisal in most cases — streamlined and streamlined assist — while the non-streamlined refinance does.
Other requirements vary slightly between the programs. (Note that the USDA doesn’t offer a cash-out refinance.)
Jumbo loans, or mortgages with loan amounts above conventional loan limits, are known as non-conforming loans because they don’t adhere to mortgage rules and laws established by the Federal Housing Finance Agency (FHFA). Because of this, jumbo loan lenders set unique refinance guidelines. Generally, you can refinance a jumbo loan anytime, depending on your lender’s requirements. Keep in mind that jumbo mortgage rates trend higher than conforming loan APRs.
“Refinancing is a very personal decision based on your specific loan scenario and financial situation,” said Mariusz Falkiewicz, a Chicago-based mortgage broker.
Despite the time commitment and cost of refinancing, some scenarios warrant it early into your original home loan repayment.
Refinancing your mortgage, whether early or later into your loan, can accomplish various goals.
It’s not uncommon for homeowners to refinance multiple times to capitalize on decreasing mortgage interest rates or address personal circumstances. However, refinancing in quick succession has drawbacks, even when moving to a more affordable loan or one with better terms.
While it can make sense to refinance in certain situations, there are some reasons to think twice about it, said Falkiewicz.
Each refinance can incur between 2% and 6% of the loan amount in closing costs. For a $200,000 loan, that’s between $4,000 and $12,000. Additionally, some loans may have a prepayment penalty for refinancing within the loan’s early years or other costs associated with a refinance.
There’s such a thing as a no-closing-cost refinance, but that doesn’t come cheap either. In this case, lenders will either roll closing costs into your new loan or increase your APR.
Once you’ve checked your home loan terms, calculate your break-even point — or the number of months it takes for your refinancing savings to trump the costs — to see how long it will take to recoup the cost of the refinance. A mortgage refinancing calculator will do the math, or use this simple formula: [Cost of points] / [Monthly payment savings].
Applying for and securing a new loan could negatively impact your credit scores initially, as credit inquiries and new accounts play a factor in your scores. Every time you submit to a hard inquiry, for example, your scores can drop by up to five points, according to FICO.
However, pre-qualifying allows you to check eligibility and rates without the hard credit check that mortgage preapproval requires.
Repeat refinancing can extend the time you pay on your home unless you refinance to a shorter-term mortgage or one equal to the time left on your current loan. When you extend your loan term, you allow more time for interest to accrue on your balance.
Depending on when you got your original loan and the current refinancing rates, there’s a chance refinancing could increase your interest rate. For example, 90% of borrowers who refinanced in August 2023 saw their rate rise by 2.34 percentage points on average, according to data from ICE Mortgage Technology.
However, if you secured your original mortgage when interest rates were at their highest in the fall of 2023, refinancing could lower your rate.
“Since interest rates peaked back in October, we’ve seen a threefold increase in the number of mortgage holders who could reduce their first lien rate by at least [three-quarters of a percentage point] with a rate-and-term refinance,” said ICE vice president Andy Walden in the company’s February 2024 Mortgage Monitor Report.
Whether extending the repayment term, moving to a higher interest rate or paying four-figure closing costs, repeat refinancing can increase your total borrowing costs. For instance, if you’re one year into a 15-year mortgage for $350,000 at 5.50% and refinance to a 30-year loan at 7.5%, you would reduce your monthly payment by $521 — a significant savings. However, you’d owe nearly $193,000 in additional interest with the new loan, plus closing costs (if applicable).
During the early years of a mortgage, a large portion of the monthly payment typically covers the interest on the loan, and a small amount pays down the principal. Repeat refinancing means restarting the clock on the loan amortization (paying the loan down), increasing the time you make interest-heavy payments and delaying the time you start paying down the principal. This results in building home equity at a slower pace.
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