How Long Does It Take To Refinance A House
Understanding the refinance process, the average timeline and what to expect as you close can make everything about your refinance a little easier.
Well introduce you to the basics behind most refinances and give you a few tips you can use to close on your refinance faster. Well also help you decide whether youve hit on the right time to refinance your home.
Risks Of Refinancing Your Home Multiple Times
There is no set rule about the number of times you can refinance a mortgage. And if youve recently closed on a house, youre familiar with the mortgage process. But just because you can refinance your home multiple times doesnt mean its a good idea. Here are some of the potential risks of multiple refinances.
1. Servicing Costs May be More than Interest Savings
A refinance is technically a brand new mortgage, complete with closing costs. Thats why, depending on your circumstances, a modest decrease in interest may not make a big difference over the life of your loan and may end up costing more. Using a refinance calculator and talking with your lender can help you see the big financial picture.
2. Extending Terms Adds Interest to the Life of Your Loan
Whether its switching from a fixed-interest mortgage to an adjustable-rate mortgage, or cashing out, you may simply be prolonging your loan and adding interest with every extra month in your new term. Its important to understand how interest will affect how much you pay over time.
3. Potential Problems Selling Your Property
If you are refinancing to extend terms or to cash out, any dips in your homes value may result in owing more on your mortgage than your home is worth. If you need to sell your home, you may not be able to recoup the remaining balance on your mortgage.
4. Refinancing Again May be More Difficult
5. Reduces Focus on Retirement & Savings
6. Extending Debt Into your Retirement
How Soon Can You Refinance An Fha Loan
FHA loans are backed by the federal government and they have more rules concerning refinances.
You cant get a cash-out refinance until youve been in the home for at least a year.
But if you want a lower mortgage rate or monthly payment without a cash-out, then you only have to wait seven months between refinancings. That applies whether you want a normal refinance or a streamline one.
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Other Good Reasons To Refinance
Another reason to refinance is that you can lower your monthly payment.
In the previous example, that owner could save nearly $100 a month by refinancing. That kind of green adds up fast. And it can make a big difference as your financial situation changes.
Maybe a baby is on the way. Perhaps you want to buy a new car. Or youre seeking to put away more money toward a college fund. These are all important motives to reduce your mortgage payments with a lower interest rate.
Refinancing sooner versus later can also be a good strategy if you:
- Want to take extra cash out to pay for something big like home improvements
- Want to use equity for debt consolidation, paying off high-interest credit cards or personal loans
- Want to switch from an adjustable-rate mortgage to a safer fixed-rate mortgage
- Need to take a partner off your loan due to a recent separation
- Have an FHA loan, which requires mortgage insurance premiums, and you want to eliminate those extra payments. A conventional wont require private mortgage insurance if you have at least 20 percent equity in your home
- Have seen a boost in your credit score recently you may qualify for an even lower refinance rate with a higher credit score
Yes, you could save money by getting lower monthly payments. But a mortgage refinance loan can also help you with bigger-picture financial goals.
How Soon Can You Refinance A Conventional Loan
Conventional loans are ones not backed by the government. So FHA, VA and USDA loans are not conventional. But loans from private lenders or Fannie Mae or Freddie Mac are.
Conventional loans have few rules about refinancing. Technically, you can walk out of closing one refinance, drive home and go straight online to apply for a new one.
The exception to this is if youve done a cash-out refinance. After one of those, there is a six-month waiting period before you can apply again. In mortgage industry jargon, such a waiting time is called a seasoning period.
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Getting A Lower Interest Rates
Refinancing to get a lower interest rate can save you a lot of money over time, depending on the prepayment penalty and the size of your outstanding mortgage. If you hold a variable rate mortgage, then expect to pay a penalty of three months interest, and if you hold a fixed rate mortgage, then you will pay the greater of three months interest or interest rate differential penalty . Dont let penalties deter you – understanding the numbers helps you calculate whether a refinance will save you money.
Costs Of Refinancing Your Mortgage
The cost to refinance your mortgage depends on the strategy you use to access equity or lower your interest rate. No matter which strategy you use you will always incur legal costs, as a lawyer must change the financing on title. The good news is if your mortgage balance is greater than $200,000, many brokers and/or lenders will cover this cost.
If you are breaking your mortgage in the middle of your term to access equity or lower your interest rate, your lender will charge you a prepayment penalty. For fixed mortgage rates this penalty is the greater of three months interest or the interest rate differential payment . For variable mortgage rates this is simply three months interest.
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How To Determine If Making Move Is Beneficial To Your Financial Goals
The Federal Reserve announced last week that it plans in the next few months to hike interest rates and ease up on buying bonds, measures it put in place to prop up the economy during the pandemic. And, in fact, the average mortgage rate for the popular 30-year fixed-loan ticked up this week perhaps signaling that the days of historically low home financing costs are numbered.
So, does that mean you should rush out and refinance your mortgage by the end of the year?
First, lets look at why rates fell so much this year, fueling the refinancing craze.
The rates can rise and fall for a number of reasons including yields on 10-year Treasury notes, the stock market and the jobs report. But the main factor in the low rates is the Federal Reserve, which has been investing trillions of dollars into mortgage-backed security bonds to keep the housing market strong during the pandemic.
Over the years, the 30-year fixed rate has varied dramatically. It was at its highest level in 1981 an annual rate of 16.63 percent when the Federal Reserve raised it to ease hyperinflation. It was 6.97 percent 20 years ago and 4.45 percent 10 years ago.
Like other homeowners, youve probably been inundated with promos from lenders offering to save you hundreds of dollars a month by refinancing your mortgage at a lower rate. You may be wondering whether youre a good candidate for refinancing and if so whether its the right time to do it.
Appraisal Process For Refinancing
Your home will need reappraising as a part of the refinancing process. The appraisal process protects the lender by ensuring the value of the house is close to the mortgage value. Since so much of your mortgage payment comes from the homes value, having an accurate appraisal will help you, too. You wont overpay for your home.
You must schedule the appraisal and pay for it yourself. These inspections can cost between $300 and $400. If you have a large property or multiple units, the cost and time to conduct the appraisal will rise. Standard times for the assessment can take between three and ten business days.
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Super: TD presents Asking for a FriendWhy Would You Refinance?
Welcome to Asking for a Friend. Lets see who could use some financial advice today.
Dear Asking for a Friend,My neighbour was talking about refinancing her home so she can borrow more money to build an extension, and it got me wondering…what exactly IS refinancing and why do people refinance?Sincerely,Next Door Nancy
I hear you, Nancy. First, what is refinancing?
Refinancing means renegotiating your existing mortgage loan agreement, usually to use any available equity in your home.
So what does that mean in real terms? Let’s say the value of your home is $500,000.
Super: $500,000
80% of home value 0.8 x $500,000 $400,000Outstanding balance of your mortgage $300,000How much you can borrow $100,000
Subject to the bank’s approval, you could borrow up to 80% of the value of your home less the outstanding balance of your mortgage.
That means if your home is worth $500,000 and you have an outstanding balance of $300,000 on your mortgage, you may be able to borrow an additional $100,000 .
So WHY do people refinance?
Super: To consolidate debts.
Super: Provide flexibility to pay for big ticket items.
Book an appointment and get financial advice for what you feel is most essential, through TD Ready Advice
Endslate: Visit td.com/readyadvice
Refinance Rates Should Stay Low So You Dont Have To Refi Right Now
The good news is, refinance rates are likely to stay low at least through the end of the year. So you wont necessarily miss out if you wait to apply.
Rather than getting caught up in what rates are today and what other homeowners are doing with their mortgages, focus on taking the next best step for you as you come out of forbearance whether that involves refinancing or not.
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When You Shouldnt Consider Refinancing
If you plan to move soon. Ifyour loan is just a few years from being paid off, refinancing to save money on interest may wind up costing you more time and money than you expected. You will incur the cost of refinancing up front, and may never receive the benefit of the lower rate.
Youll incur prepayment penalties or exorbitant loan costs. How long will it take you to recoup the money you spend on your refinance? If you incur a prepayment penalty to get rid of your old mortgage or you need to pay points or fees to get a new mortgage, spending money today to save money in the future is not always a good plan. Ask yourself these questions when you determine the out-of-pocket costs you face:
- Can you wait a short period of time and have the prepayment penalty go away?
- Can you find a different lender who will offer you a comparable rate without you incurring out-of-pocket costs?
- If you will be staying in your home for a long time and can take out a no-cost refinance, it may make sense to refi for an even smaller decrease in interest rate.
Your new loan will require mortgage insurance. Private mortgage insurance typically costs anywhere from .5 to 1 percent of your entire loan amount. If youre not currently paying PMI, the additional cost may be burdensome to you. Lets say your new loan is for $200,000, this could mean an additional $2,000 to your expenses each year.
Now that weve assessed when refinancing makes sense, lets explore how to refinance.
Final thoughts
How Much Money Will I Save By Refinancing
The most common reason to refinance is to save money. Naturally, one of the most common questions, then, is how much youll save by refinancing.
Every situation is different, but lets run through a couple of scenarios just so you have things to think about. You can put in your own numbers with our refinance calculator.
Lets say you wanted to pay off your mortgage faster and had $200,000 left on a home worth $250,000. You have 20 years left on your term and want to pay off your home faster. You have excellent credit.
You could refinance into a 15-year conventional fixed mortgage at an interest rate of 3.75% and have a monthly payment of $1,454.45. There are $7,057 in closing costs. However, by paying those closing costs and getting that rate, youll save over $40,000 in interest.
On the other hand, if you were to lengthen your term to lower your payment, you would save every month, but you would end up paying more in interest. It doesnt work this way in the real world, but lets keep everything the same except the term.
If you had a 3.75% interest rate on a $200,000 loan, because the term is longer, youll pay about $30,000 more in interest. In reality, this number is higher because a longer-term loan also means a higher interest rate.
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Where To Learn More About Mortgage Refinancing
To truly understand if its a good idea to refinance your mortgage, you should speak to a licensed Canadian mortgage broker. Theyll be able to assess your personal situation at no cost to you, and help you understand what your options are. If youre ready to refinance then they can also find you the best deals and guide you through the process.
Refinancing To Convert To An Arm Or Fixed
While ARMs often start out offering lower rates than fixed-rate mortgages, periodic adjustments can result in rate increases that are higher than the rate available through a fixed-rate mortgage. When this occurs, converting to fixed-rate mortgage results in a lower interest rate and eliminates concern over future interest rate hikes.
Conversely, converting from a fixed-rate loan to an ARMwhich often has a lower monthly payment than a fixed-term mortgagecan be a sound financial strategy if interest rates are falling, especially for homeowners who do not play to stay in their homes for more than a few years.
These homeowners can reduce their loan’s interest rate and monthly payment, but they will not have to worry about how higher rates go 30 years in the future.
If rates continue to fall, the periodic rate adjustments on an ARM result in decreasing rates and smaller monthly mortgage payments eliminating the need to refinance every time rates drop. When mortgage interest rates rise, on the other hand, this would be an unwise strategy.
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You Might Face Prepayment Penalties
While Rocket Mortgage® does not have a prepayment penalty, some lenders include clauses that penalize you if you pay off your loan before your term ends. For example, you may need to pay anything you saved in interest if you pay your loan off within 5 years of your term.
This can create a problem if youve already gotten one refinance and reset your loans term. Read through the terms of your last refinance and see if your loan has an early repayment penalty before you apply for a new one.
Consider Your Current Financial Goals
Before you sign your mortgage renewal slip and send it back, you should first review your financial goals. You want to be sure your current provider can offer a mortgage product that suits your needs. For example, if your current mortgage term is a five-year fixed rate, the renewal slip will likely be for another five-year fixed. If you think youll stay in your home for that amount of time, great. But if you know theres a chance youll downsize or potentially move to a new city in the next few years, you may want to look for a three-year product instead.
Other financial goals to consider may be how extra money could affect the prepayment options you want. Also consider whether it makes sense to refinance your mortgage or get a HELOC to access equity. Knowing what you need in a mortgage should help you form the decision around which lender and product to choose.
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Expert Insight On Mortgage Refinancing
To help answer all your questions, MoneyGeek spoke with industry leaders on refinancing and home lending. This panel will help you identify what to look for, when you should consider refinancing and how to avoid scams in the process.
