Benefit From A Lower Rate
Lets say you closed on your home in the summer of 2019 and settled for a 4% interest rate. Fast forward one year later and you see that rates are more than a percentage point lower. Even though youve only been in your home for a year, you may want to consider a refinance.
Imagine saving hundreds each month simply by refinancing your mortgage. You can use the extra funds to pay down high-interest debt, build up a savings account, or cover the costs of a future home improvement project. Believe it or not, lowering your rate by a fraction of a percentage could provide much-needed financial relief.
Things To Consider Before Refinancing
Before you consider a refinance, it’s important to keep a few things in mind.
- Closing costs: You’ll have to pay closing costs. Freddie Mac estimates these run around $5,000 per loan, but the exact total will depend on your lender, loan amount and location. You can also roll these costs into your loan and pay them off over time, just remember: It will mean a higher loan amount, monthly payment and long-term interest costs.
- Refinancing can also hurt your credit score at least temporarily. That’s because your lender will do a hard credit inquiry when processing your application. This causes a temporary decline in your score. As long as you make your payments on time, though, the score should recover fairly quickly.
- Reverse mortgage: If a traditional mortgage refinance or cash-out refinance doesn’t sound like something you may benefit from, a reverse mortgage is also worth considering. A reverse mortgage allows homeowners who have fully paid or paid off most of their mortgage, to take out a portion of their home’s equity. The freed-up equity, considered tax-free income, can help pay debt, bills or complete home repairs. It needs to be repaid, however, if the homeowner dies or elects to sell the home. Make sure you know the pros and cons of this alternative before proceeding.
If you think you would benefit from a reverse mortgage, you can take the first step today by seeing what you qualify for.
Pay Off The Loan Faster
On the other hand, maybe you want to pay off your loan even faster. By refinancing to a shorter repayment period , your monthly payments will increaseâbut youâll get rid of your debt sooner and save money in the process. Take our earlier example of a $100,000 30-year mortgage with a 6% interest rate. If you cut the repayment period to 20 years, the monthly payment would increase from $600 to $716 , but youâd shave off 10 years and $43,895 in interest from the loan.
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How Often Can You Refinance A Mortgage
There is no limit to how many times youre allowed to refinance a mortgage, though a lender might enforce a waiting period between when you close on a loan and refinance to a new one. Often, lenders have whats called a seasoning requirement a period of time you need to wait before refinancing, generally at least six months.
However, that might only apply if youre refinancing with your current lender you could find a new lender that is willing to do the refinance sooner and skirt the six-month rule altogether. Still, if youre considering a cash-out refinance, the waiting period, in many cases, is firm at six months.
For government-insured mortgages, there are different requirements:
- Borrowers who have an FHA loan and are looking to do an FHA streamline refinance are required to wait 210 days from the closing date of the first mortgage, and six months from the due date of their first mortgage payment, before being able to refinance.
- For an FHA cash-out refinance, there is only a six-month payment requirement.
- Borrowers with a VA loan considering a VA streamline refinance are required to wait either 210 days from the date of their first mortgage payment or the date the sixth mortgage payment is made, whichever is later.
- For a VA cash-out refinance, the required waiting period is also at least 210 days from the closing date of the first mortgage.
Not Sure Whether Its The Right Time To Refinance
Check out our home loan refinance guide for more golden tips. Also, the refinance checklist will help you ensure you have all the required documents you need to start your refinance application.
We can help you run the numbers and see if refinancing makes sense for you. and Call us on 1300 889 743 or fill in our free online assessment form to speak with one of our home loan refinance specialists today!
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Taking A Lower Interest Rate
Have interest rates lowered since you got your refinance? You may want to refinance again to take advantage. You can almost always save money if youre able to lower your interest rate without changing the term of your loan.
Just a small change in your interest rate can save you hundreds, or even thousands, of dollars. For example, lets say you currently have a 20-year mortgage loan with $150,000 left on your principal and you pay an interest rate of 4.5%.
You have the chance to refinance your loan with the same terms and an interest rate of 4% APR. If you dont refinance, you pay $77,753.84 in interest by the time your loan matures. If you take the refinance, you pay $68,152.95 total in interest. Lowering your interest rate just 0.5% means you’ll save over $9,601 in interest.
How Often Can You Refinance An Fha Loan
There are no limits on how often you can refinance with an FHA loan. FHA loans also have a streamline program that requires six months of seasoning. To qualify for FHA refinancing, you need to be current on your mortgage payments, have a recent history of paying your monthly bills when they are due, and receive a real benefit from refinancing. Learn more about FHA streamline refinancing.
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When It Makes Sense To Refinance During A Fixed Term
Yes, you can refinance your mortgage during your fixed loan term.
You may have to pay break costs and early exit fees but, if you recoup these costs within two years of refinancing, it may be worth it.
The refinancing calculator can give you a pretty good guide on the costs versus savings of refinancing.It will calculate how much your monthly payment will change and how long it will take to recoup any fees and break costs.
Its recommended that you speak with an experienced mortgage broker so they can assess your financial situation in full.
How Often Can You Refinance Your House
There’s no legal limit to how many times you can refinance your home, so you don’t need to worry about “using up” your chance to do it.
The number of times you refinance may not be a concern, but there are some other factors to consider before taking the plunge.
For example, some lenders may require you to wait a certain amount of time before refinancing, or you may find out that refinancing right now isn’t the best move for your financial well-being.
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Get A Shorter Term On Your Loan
If youve been paying off your original home loan for many years, it might make sense to refinance into a shorter loan term, like a 15- or 20-year mortgage. Shorter loan terms typically have lower interest rates than 30-year mortgages. And youre reducing the number of years youll pay interest on the loan. So this strategy can lead to huge savings in the long term.
Just keep in mind that a shorter-term mortgage will have higher monthly payments because youre paying off the same loan amount in less time.
How Often You Can Refinance Government
If you currently have a loan backed by the Federal Housing Administration , U.S. Department of Veterans Affairs or U.S. Department of Agriculture , lenders will need information about how recently you closed on the mortgage youre refinancing.
The date is used to determine whether you meet the seasoning requirement, which is the number of payments made since you took out your current FHA, VA or USDA loan. These programs also set strict limitations on your breakeven point which is how long it takes for you to recoup your refinance closing costs.
The table below shows the minimum waiting periods and breakeven requirements for three popular government streamline refinance programs: the FHA cash-out refinance, the VA interest rate reduction refinance and the USDA streamlined assist refinance.
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To Switch From An Arm To A Fixed
For some homeowners, this can be an excellent move, particularly if you intend to stay in the home for years to come. But homeowners who are simply afraid of the bad reputation of an adjustable-rate mortgage should carefully look at their terms before making a move to refinance.
If you have an ARM, make sure you know the index to which it is tied how often the loan adjusts and what the caps are on loan adjustments for the first cap, annual cap, and lifetime cap. It may be that a fixed-rate loan is better for you, but do the math before committing to spending money on a refinance.
How Does My Credit Score Affect Refinancing
Your credit score not only helps determine your mortgage refinance approval, but also determines the interest rate your lender is going to offer. Simply put, the higher your credit score, the lower your interest rate is going to be.
For example, a borrower with an average loan size of $250,000 and a credit score of 640 may pay around $2,500 more a year in interest payments than a borrower with a credit score of 760. If your credit score has fallen since you first obtained your mortgage, you can expect to pay higher ratesâwhich may negate any potential benefit of refinancing.
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Can I Refinance With The Same Bank
The short answer is yes, though it might not be the best option. Refinancing with your current mortgage lender has some advantages: They already have your information on file, and they may offer you a good deal to stick with them. On the other hand, if youre looking for the very best possible deal, then its worth shopping around.
What Documents Do I Need To Refinance My Mortgage
To refinance your mortgage, youll need to supply identification, income verification and credit information. Be sure to ask your lender for a list of documents youll need. The faster you can give the lender everything they need to process your loan, the quicker youll be able to close.
Heres a general checklist:
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How Old Will You Be When The Mortgage Is Repaid In Full
One downside to refinancing is that if you sign up for a new 30-year mortgage, youre restarting the clock until youre mortgage free. If youre already seven years into a 30-year loan, you may not want to start over again with 30 years to go. This is especially true if the new timeline would mean youre carrying debt into your 60s when youre likely going to be thinking about retiring.
Its possible you could pay more than the monthly minimum to shave time off the repayment term, but this should be a consideration as well. Alternatively, you can refinance to a 15-year mortgage.
Home Equity Loan Or Heloc
A home equity loan or home equity line of credit can also give you access to the equity in your home. With a home equity loan, you get a lump sum upfront that you can use to consolidate debt or pay for a home renovation project. On the other hand, a HELOC is a revolving credit line that allows you to borrow smaller amounts as needed, which can help you keep your monthly mortgage payments lower and steer clear of unnecessary debt.
Just remember to make your payments on time, or you could risk your home home equity loans and HELOCs are secured debts that require you to put up your home as collateral.
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You May Get Charged A Prepayment Penalty
Some mortgages come with prepayment fees for paying off your mortgage ahead of schedule. This is a fee charged if you pay the loan before the prepayment period has passed by paying off in cash or refinancing with a new loan. Youll want to check your current mortgage terms to ensure theres no mention of a prepayment penalty.
If there is a penalty, you should add the fee to the cost of the refinance to make sure paying it early is worth the expense.
What Is A Mortgage Refinance
A mortgage refinance is simply a transaction where you get a new mortgage to pay off your old mortgage. As a homeowner, youll have the opportunity to choose among all the types of mortgages available to home buyers. Understanding your options will help you choose the best loan for buying your house for a second time.
See how much cash you could get from your home.
Apply online with Rocket Mortgage® to see your options.
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What You Need To Know
- There are no rules limiting how many times you can refinance a mortgage, but many lenders set a 6-month waiting period before refinancing
- When you refinance, your lender will run a hard credit inquiry that will cause your credit score to drop temporarily
- Every time you refinance, you pay closing costs, which are usually 2% 5% of the loan amount
Refinancing To Shorten The Loan’s Term
When interest rates fall, homeowners sometimes have the opportunity to refinance an existing loan for another loan that, without much change in the monthly payment, has a significantly shorter term.
For a 30-year fixed-rate mortgage on a $100,000 home, refinancing from 9% to 5.5% can cut the term in half to 15 years with only a slight change in the monthly payment from $805 to $817. However, if you’re already at 5.5% for 30 years , getting, a 3.5% mortgage for 15 years would raise your payment to $715. So do the math and see what works.
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Lower Your Monthly Mortgage Payments
Even if you cant lower your interest rate, refinancing can still lower your monthly mortgage payments. Thats because a new loan extends your repayment term and gives you more time to pay off the remaining loan balance. This can be helpful if youre in a financially tight spot and need to save money, but cant drop your rate because interest rates are now higher.
Just keep in mind that extending your loan term without decreasing your rate will likely increase the amount of interest you pay in total over the life of the loan. So this can be a risky strategy.
Changing Your Loan Term
Income changes can happen at a moments notice. If your income has increased, you may want to refinance into a shorter loan term say, from a 30-year to a 15-year term so your mortgage is paid off earlier. If your income has decreased, you may want to refinance into another 30-year term to lower your monthly mortgage payment.
. However, remember that every time you refinance your loan to a longer term, you increase the amount you pay in interest.
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How Often Should You Refinance Your Home
While theres no golden rule for how many times you should refinance your house, your breakeven point will at least tell you if youre losing money each time you refinance. You can calculate your breakeven by dividing your total closing costs by your expected monthly savings. For example, if you spend $4,000 on closing costs to save $100 per month, then your breakeven is 40 months.
If you refinance before making 50 payments, youll effectively lose money on the refinance. In the example above, lets assume you refinance again after 24 months. Youll only have recouped $2,400 of the $4,000 you paid in costs , leaving you with $1,600 that you wont recover.
In general, you should refinance your home if:
- You can get a lower interest rate and payment
- You can use the monthly savings to pay your loan off faster
- You need to tap equity to cover major expenses like college education
- You want to fix up your home
- You can accomplish other financial goals with the payment savings, such as beefing up an emergency fund or increasing your retirement account contribution
When Should I Refinance My Mortgage
Refinancing is the process of taking out a new home loan and using it to pay off the balance on your existing mortgage. Ideally, this new loan will be more beneficial than the old one in some way. For example, you might refinance to secure a lower interest rate, adjust the term length on your original mortgage or switch the type of loan that you have.
One of the primary benefits of refinancing is the ability to reduce your interest rate. A lower interest rate may mean lower mortgage payments each month. Plus, saving on interest means you end up paying less for your house overall and build equity in your home at a quicker rate.
You might also refinance to adjust the terms of your loan, which may result in lower monthly payments. For example, if your existing mortgage has a term of 15 or 25 years, securing a 30-year mortgage could allow you to make smaller monthly payments over a longer period of time. Or, if you’ve already paid off a significant portion of your 30-year mortgage, taking out a new 30-year loan for the balance could offer similar monthly savings.
Just remember: a longer mortgage term may mean lower monthly payments, but it could also mean you’ll end up owing more in interest than you would with a shorter loan term. Be sure to consider whether your monthly savings are worth this increase in interest cost over time.
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