When interest rates are low, you may find yourself wondering, how often can I refinance my home loan? If so, you’ve come to the right place to get some answers. We’ll explain everything you need to know to decide whether now is the right time to apply for a refi.
When we refer to seasoning, we’re not talking about the spicy condiments you add to your dinner plate. We’re actually talking about the age of your mortgage. Not quite as appetizing, right? But still important to keep in mind when you’re thinking about applying for a refi.
Typically, a mortgage is considered seasoned one year after closing. Many lenders require you to wait that amount of time before applying for a refi. Otherwise, you are considered a high-risk borrower because you haven’t built up a long-enough payment history for the lender to reliably assess your ability to repay the loan.
The same goes for a home equity line of credit (HELOC). You will likely need to wait a full year before applying for a second mortgage. However, some lenders may allow you to refinance as soon as six months after closing.
If you only recently closed on your home and need to wait a bit before refinancing, take the time to shop around for the best lender. If you are not already a member of your community credit union, drop in for a visit. You will likely find that your local credit union offers much more competitive rates than other financial institutions in your area.
Check the Interest Rates
If it’s been more than a year since you took out your mortgage, you may be full-steam ahead on the refinance track. But slow down for a bit. Even if your mortgage is fully seasoned and you’re ready to refi, you’ll first need to figure out if it’s really the best decision.
Start by doing your research. Check market trends. If you notice interest rates are trending downwards, you may want to wait a bit before refinancing so you can lock in the best possible interest rate.
Mortgage News Daily has an interactive chart that breaks down mortgage interest rate trends based on loan type. You can add or remove items from the chart by clicking on the items in the legend. It also includes a table that displays mortgage interest rates over time so you can see if interest rates are trending upwards or downwards.
If you decide now is the right time for you to refi, make sure you crunch the numbers. A lower interest rate is desirable, but remember that refinancing comes with certain costs. For instance, Freddie Mac estimates that the national average cost for a refinance is about $5,000, though costs will vary by state, county, and lender—some lenders may offer no-closing-cost refinancing options. Some of the expenses you can expect include an application, loan origination, appraisal, title search, and recording fees, among others.
Ask for an estimate of closing costs from your lender and then do the math to find out how long it would take you to earn that money back. Let’s say, for instance, the lower interest rate will save you about $100 on your mortgage payment each month. If your refinance costs are $5,000, it would take you just over four years to make back the money you spent up front. If you’re planning to relocate in a couple of years, it may not make much sense for you to do a refinance right now.
Also, take into account that, if you’re refinancing for a longer loan term, then you will be paying more money in interest over the life of the loan. Let’s say, for instance, you close on a 15-year mortgage. After making payments on your mortgage for 2 years, you decide to refinance for a new 15-year mortgage. You’ve now extended the term of your loan by two years and will be making additional interest payments over that period. Considering interest rate, closing costs, and loan term will help you decide whether now is the right time to do a refi.
If you’ve paid down a good amount of your mortgage or your home has increased in value since you first purchased it, you may have built up some equity that you would like to cash in on, literally. If so, a cash-out refinance may be a good option for you.
A cash-out refi allows you to refinance your existing mortgage for a greater amount and receive a cash payment for the difference between the old and new loan amounts. Keep in mind that a cash-out refinance may have different requirements than a traditional refinance. For instance, you can usually only do a cash-out refi for a maximum of 80% of the home’s value. You also typically need to have a debt-to-income (DTI) ratio of 43 percent or less, though most lenders prefer a DTI ratio of 36 percent or less.
Whether you’re considering a traditional refi or a cash-out refi, you do not have to stay with your current lender. To find the best rate possible, shop around.
Need a place to start? If you’re looking for a home loan refinance and you live in the state of Washington, contact Solarity Credit Union. They offer competitive rates and have flexible requirements, and their expert Home Loan Guides can answer questions like, how often can I refinance my home loan? Solarity also offers a no-closing-cost Express Refinance option that’s even available when you utilize a cash-out refinance, streamlined to get you to closing in as little as 14 days. Connect with the Solarity team, and they’ll help you decide if now is truly the right time to refinance.