When Can I Refinance?

There’s a fine line between when a homeowner can refinance and when they should, and a lot is dependent on your loan terms. Some lenders stipulate at the time of closing that the owner must wait a certain amount of time before refinancing their purchase. Others don’t set such hard and fast rules, but do charge an additional fee, called a pre-payment penalty, if the loan is paid off before the end of its term. If that’s the case, you’ll need to do some careful calculations to ensure you’ll actually be profiting from the refinance.

Closing Costs

It’s also important to be aware that you’ll pay closing costs again on the new home loan, so if you’re refinancing for only a slight reduction in your interest rate, the savings might be offset by the cost of the closing. And while you can refinance immediately after purchasing, if there isn’t equity accrued in your home, your odds of approval are slim. It’s in your best interest to pay down the principal at least in part before considering a new loan.

It’s All In The Timing

Like many things in life, the timing of your refinance is everything. If your home suddenly increases in value thanks to new developments in your area, cashing in on a new appraisal could net you an extension of equity or a reduced interest rate. If you were previously required to hold mortgage insurance, you may also be able to negotiate its release. When values fall, the opposite occurs; money can be hard to find even for buyers and owners with pristine credit.

Most home loans require that the bulk of the interest be paid up front in the first few years. If you’ve already been paying into your mortgage for twelve years and refinance for another 30 year term, you’ll end up paying way more for your house than it’s actually worth! However, if you can move the opposite direction and refinance a long-term loan into a short one, you may save thousands in interest payments.

Refinancing only makes sense for owners planning to stay in a home long-term. If you’re considering selling in the next three to five years, the less you owe on your mortgage the better–that’s more money in your pocket. Keep paying down your premium and wait to borrow against your new home once you upgrade.

Written By: Austin Davis, Team Leader at Royal United Mortgage LLC

Published:  11/12/2015