Mortgage Daily

Published On: December 20, 2022

How Quickly May a Mortgage Be Refinanced?

You may have recently purchased a home or even refinanced it. However, it may be a short time to refinance.

Many homeowners can refinance into a loan with a reduced interest rate immediately. And others must wait at most six months. Therefore, there is a significant probability that you can refinance at today’s rates.

Here Is the Timeline for Refinancing

If you have a traditional mortgage, you may refinance at any time to obtain a cheaper interest rate. However, you must wait six months if you want a cash-out refinancing or a Streamline Refinance.

  • No waiting period for conventional refinancing (no cash out) 
  • Refinance with cash-out: 6-month waiting period
  • FHA or VA Simplification 210-day holdup time for refinancing
  • USDA refinance: six to twelve-month waiting time

Below, we examine the requirements for each form of refinancing loan in further detail.

Conventional Loan Refinancing Rules

Suppose you have a conventional mortgage guaranteed by Fannie Mae or Freddie Mac. In that case, you may be eligible to refinance promptly following the closing of your home purchase or a prior refinance.

Consider that many lenders need a six-month “seasoning period” before an existing borrower can refinance with the same firm. Therefore, you will likely have to wait if you wish to refinance with your current lender.

In most cases, you may circumvent the six-month refinancing waiting time by shopping about and refinancing with a new lender.

Some lenders may levy a prepayment penalty fee, which might ruin your intentions to refinance. Before proceeding, determine if your current loan contains a prepayment penalty provision.

You should look around before refinancing to obtain the lowest feasible interest rate.

Rules for Cash-Out Refinancing

Regardless of your mortgage, the standard waiting period for a cash-out refinance is six months.

Additionally, a cash-out refinance often requires you to retain at least 20% home equity.

Before using a cash-out refinance, you must ensure that you have sufficient home equity to make it viable. If you made a substantial down payment or if the value of your property has increased, you may already have enough home equity to qualify.

Government Loan Refinancing Rules

Government-backed mortgages are governed under slightly different guidelines. This covers loans from the FHA, USDA, and VA.

With a government loan, you can utilize Streamline Refinance. Streamline refinancings, such as the FHA Streamline Refinance or VA IRRRL program, reduces the time and paperwork required for a refinance, allowing you to obtain a reduced interest rate more quickly.

However, you must wait six to seven months before using a Streamline Refinance to replace your current mortgage. And you must have a recent track record of making mortgage payments on schedule.

It Is Preferable to Refinance Sooner Than Later

It is always early enough to consider refinancing your mortgage.

There is no minimum waiting time. A mortgage is a legal document. “As soon as a better bargain becomes available, you should terminate the contract and accept it,” advises Realtor and real estate attorney Bruce Ailion.

According to closing attorney Chuck Biskobing, there are no substantial dangers associated with refinancing within a year after purchase.

Biskobing states, “I’ve seen customers refinance three times a year in response to lowering interest rates.”

“Say you wish to apply the monthly savings to the loan in the form of accelerated principal payments,” he explains. “If this is the case, you will likely repay the new debt faster than the previous one. And you’re not adding enough time to the debt for it to be significant.”

In other words, if you’re just six or eight months into a mortgage, you are not significantly extending the life of the loan.

However, if you’re already five to ten years into your loan, switching to a new 30-year mortgage may not be beneficial.

Use this refinance calculator to see whether a refinance is worthwhile depending on your remaining term.

When Is It Worthwhile to Refinance?

“The most crucial factor to consider is the loan’s monthly and lifetime savings. What is the price? Ralph DiBugnaro, the president of Home Qualified, asks, “How long will it take you to recoup these expenditures via the savings you’ll earn?”

Senior Economist for the National Association of Realtors Gay Cororaton identifies the “best prospects” for refinancing as:

  • Those with high mortgage rates in comparison to the new, lower rate
  • Those who wish to reside in their property for a very long period
  • Those that are prepared to pay closing fees with cash

Alternatively, many lenders can incorporate the closing fees into the mortgage principle or cover them with a higher interest rate so that you can wait to pay them.

This “higher” interest rate may still be far lower than your current rate, and there are no closing expenses or loan amount adjustments.

Refinancing becomes a no-brainer when your rate decreases without any additional fees.

Refinancing Might Reduce Your Interest Payments by $29,000

Your last home-buying or refinancing experience was difficult. There was significant red tape, and the closing charges were high. Why, therefore, would you choose to repeat all these steps?

There are several good causes.

First, if you qualify for a lower rate, you can save a substantial amount on interest.

  • Suppose you recently closed on a $250,000, 30-year, 4.5% fixed-rate mortgage.
  • Assume you may now refinance at 3.75 percent, resetting the 30-year term.
  • You will save around $100 each month on your mortgage payments.
  • You will have paid roughly $29,000 less in interest over thirty years.

This technique is typically worthwhile if you plan to remain in one place for an extended period.

Cororaton states, “It makes sense to refinance if the interest payment savings exceed the costs and fees connected with completing a new mortgage.”

Additional Reasons to Refinance

Additionally, refinancing allows you to reduce your monthly cost.

By refinancing, the former homeowner may save over $100 each month. This amount of green quickly piles up. Moreover, it might have a significant impact if your financial condition evolves.

Perhaps a child is on the way. You may want to buy a new automobile. Or you are attempting to save extra money for a college fund. These are major reasons to minimize your mortgage payments by lowering your interest rate.

Refinancing sooner rather than later might also be advantageous if you:

  • Want to withdraw additional funds (draw on home equity) to pay for a substantial expense such as house improvements?
  • Want to use equity to consolidate debt, repay high-interest credit cards, or personal loans?
  • Would you like to move from an adjustable-rate mortgage to a more secure fixed-rate mortgage?
  • Need to remove a former spouse from your loan owing to a recent divorce?
  • You own an FHA loan, which demands mortgage insurance premiums, and you wish to eliminate these additional payments. If you have at least 20% equity in your house, private mortgage insurance (PMI) is not required for a traditional loan.
  • Have lately noticed an increase in your credit score; with a higher score, you may be eligible for an even cheaper refinancing rate.

Yes, you might save money if your monthly payments were reduced. However, a home refinance loan might help you achieve long-term financial objectives.

 

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