How Soon Can You Refinance A Mortgage?

Read Time: 7 minutes

You’re a proud homeowner, a feat made possible thanks to financing in the form of a mortgage loan. But even though you only closed on the loan relatively recently, you’re now seriously thinking about refinancing – perhaps to pay less in interest or to change your loan’s terms. That begs an important question: How soon are you allowed to pursue a mortgage refi?

The answer will depend on the type of loan you have and your lender’s rules. Read on to learn more about good reasons to refinance, refi requirements when it comes to timing, the downsides to trying a refi prematurely, the strategy of delayed financing, and more.

Common Reasons To Refinance

There are several worthy reasons why you may want to consider a mortgage refinance, even if it has only been a few months or a handful of years since you closed on your home loan.

“One is if market interest rates have decreased significantly since you closed,” says Matt Dunbar, senior vice president of the Southeast with national lender Churchill Mortgage. 

Case in point: Let’s say you currently pay $2,000 in principal and interest on a mortgage loan with a 7.5% fixed interest rate that has 28 years left and a $300,000 balance. If you could lock in at, say, a new 6% fixed rate and reset the term to a fresh 30 years, you could save over $201 per month and pay nearly $24,500 less in total interest over the life of the loan.

Another worthy motivation to refi is to change your loan’s term, either extending it or shortening it. Using some of the same math above, consider if you refinanced from your loan’s existing 28 years, 7.5% fixed rate, and $300,000 remaining balance down to a new 15-year loan with a 6.0% fixed rate.

If so, your new monthly payment would jump to about $2,532 (an increase of roughly $532). But you would save a whopping $216,317 less in total interest and cut 13 years off your loan.

Or, you may want to switch from an adjustable-rate mortgage to a fixed-rate mortgage, which is possible when you refi. This can provide more predictable monthly payments and stability, “which can be crucial in a fluctuating interest rate environment,” Dunbar continues.

Yet another compelling reason to refi is to liquidate some of your home’s equity via a cash-out refinance, which can help you fund a major expense like college, a home improvement project, or a wedding, or pay off higher interest debt.

Advantages and disadvantages of refinancing

There are several pros and cons to refinancing your primary mortgage loan. Among the benefits:

  • Save money. If you can lock in a lower fixed interest rate, you can potentially save thousands otherwise spent in interest over the life of your loan. However, many experts don’t recommend refinancing for this reason unless you can score a rate at least 1 percentage point lower.
  • Consolidate debt. “Refinancing to consolidate high-interest debt into a mortgage could result in lower overall interest paid, even if the new mortgage rate is higher than the original,” explains Ali Nassirian, vice president of Lending, Consumer & Home Loans, for Travis Credit Union.
  • Change your loan terms. Shortening or lengthening your loan’s term can, respectively, either save big money on interest and help build equity more quickly or make monthly payments more affordable and increase cash flow.
  • Remove private mortgage insurance (PMI). If you’ve been forced by your lender/loan to pay PMI because your original down payment was low, you can eliminate PMI and save money, assuming your home’s value has increased and you’ve accumulated at least 20% equity. 
  • Fund financial goals. By opting for a cash-out refinance, you can tap into your home’s equity and use the extra funds to pay for a major expense, renovation, or other objective.

But weigh the tradeoffs carefully, including:

  • Increased debt. If you lengthen your loan’s term, cash out ample equity, and/or refi to a higher rate, you’re going to owe more money over the long term.
  • Closing costs. Fees and associated closing costs of refinancing can equate to 2% to 5% of your total loan amount. “For a $300,000 mortgage, that could mean $6,000 to $15,000 in costs,” cautions Dunbar. Because of these extra expenses, it may not be financially worth it to refinance unless you can shave at least 1 percentage point or more off your interest rate.
  • Hassle and red tape. Applying for a refinance loan can involve lots of paperwork, and the entire process – including awaiting an underwriting decision – may take 30 to 45 days.

Refi timing rules for different loans

According to Dennis Shirshikovv, an adjunct professor of Economics at City University of New York, you may be permitted to refinance as quickly as half a year after the closing date on your existing mortgage loan. This wait time is called a “seasoning requirement.”

“Most lenders require a minimum of six months of on-time payments and loan seasoning before considering a refinance application,” he says. “This period allows the borrower to establish a payment history and the lender to assess the stability of your loan.”

Here are the typical minimum wait times for different types of mortgage loans:

  • Conventional loans – 6 months
  • Conventional cash-out refinance loans – 6 months, “although some lenders may extend this to 12 months to further mitigate risk. This longer period ensures the borrower has established efficient equity and payment history,” Dunbar adds.
  • FHA loans – 6 months for a normal refi, 210 days for a streamlined refinance, 12 months for a cash-out refi
  • VA loans – 6 months for a normal refi, 210 days for a streamlined refi or cash-out refinance
  • USDA loans – 12 months
  • Jumbo loans, portfolio loans, and other types of mortgage loans – Seasoning requirements will vary depending on the lender and loan 

“For loans with a minimum wait time required, attempting to refinance earlier than this time can either be disallowed outright or come with penalties,” says Carl Holman with AD Mortgage. “For instance, prepayment penalties on some loans can be quite costly. It’s crucial to read the terms of your mortgage agreement to understand any penalties associated with early refinancing.”

Drawbacks of attempting to refinance too soon

Attempting to refinance a mortgage loan prematurely can backfire on you, the pros agree.

“For example, if you refinance too soon, you may not have enough equity built up – leading to a higher loan-to-value ratio and a potentially higher interest rate. Additionally, you might incur closing costs that negate the savings from a lower interest rate,” Holman cautions.

Case in point: Imagine you have a $300,000 mortgage balance at a 4.5% fixed interest rate; you refinance after six months to a lower 4.0% fixed rate. Assume your closing costs are $5,000 and the refi triggers a $150 monthly savings. If so, “it will take over 33 months just to break even on the refinancing costs, not considering any prepayment penalties charged,” says Holman.

Consider Delayed Financing

There’s a twist on refinancing you might want to consider. It’s called “delayed financing.”

“If you purchased your home 100% with cash, delayed financing allows you to quickly recoup these costs and reimburse yourself by taking out a mortgage loan immediately after the purchase. This option is particularly beneficial for those who can purchase a property outright without financing but who prefer to maintain liquidity for other investments,” notes Dunbar. “It also enables buyers to act swiftly in competitive markets, securing a property without the delay of mortgage approval.”

This strategy can be particularly beneficial for real estate investors who frequently purchase and sell properties, enabling them to maximize their capital efficiently.

Consider this scenario: You buy a $400,000 home entirely with your cash. Then, you pursue a “delayed financing” mortgage loan and recoup up to 80% of the purchase price – providing $320,000 to reinvest in rental property. Then, you use your rental income to help pay off your mortgage.

“There is no typical wait time for delayed financing. But the transaction must be completed within six months of the all-cash purchase. This requirement ensures that the financing aligns closely with the initial purchase, maintaining your liquidity and investment strategy,” Dunbar adds.

The Bottom Line

Don’t be in too quick a rush to refinance your current home loan. Crunch the numbers first, learn what the minimum seasoning requirements are for your loan, and ask your lender about any possible prepayment penalties that could be charged.

But once your minimum wait time has elapsed and you have the green light to refi, shop around among different lenders and loans and compare rate quotes, terms, and packages carefully.

Erik J. Martin

Erik J. Martin is a Chicago area-based freelance writer and public relations expert whose articles have been featured in AARP The Magazine, Reader’s Digest, The Costco Connection, Bankrate, Forbes Advisor, The Chicago Tribune, and other publications. He often writes on topics related to real estate, personal finance, technology, health care, insurance, and entertainment. He also publishes several blogs, including Martinspiration.com and Cineversegroup.com, and hosts the Cineversary podcast (Cineversary.com).

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