How Soon Can You Refinance a Mortgage?

As experts anticipate a cooling of interest rates, it's like a green light for homeowners to consider refinancing their mortgage. By refinancing, you could snag a lower interest rate, trim down those monthly payments and score a sweeter deal overall. But here's the question: How soon can you refinance a mortgage? Knowing when you can actually pull off a refinance is key. This guide is a road map, breaking down the nitty-gritty of refinancing, including the minimum wait times for different types of loans. 

How Soon Can You Refinance A Mortgage?

The minimum time frame for refinancing depends on the type of loan you currently have. 

Conventional Loans 

Conventional loans are not backed by the government and are offered by private lenders. While there’s no set waiting period for a standard rate-and-term refinance, those looking to refinance with the same lender may encounter a six-month seasoning period. However, this requirement is waived if you refinance through a different lender, allowing for immediate action. A cash out refinance, which involves borrowing more than the existing mortgage balance, typically necessitates waiting for at least 12 months, although exceptions exist for inherited properties or those allocated through divorce proceedings.

FHA Loans

FHA loans are insured by the Federal Housing Administration (FHA) and are designed to help low-income, first-time homebuyers and those unqualified for conventional loans due to lower credit scores. FHA loan variants include:

• FHA simple refinance: A rate and term refinance of an existing FHA mortgage where you can add the closing costs to the loan amount. It doesn’t require a waiting period.
• FHA streamline: Allows existing FHA loan borrowers to efficiently capitalize on low rates by quickly refinancing their loans. To qualify, at least 210 days must have passed since your FHA loan closing and six months since your first payment due date.
• Cash out: Borrowers can refinance existing loans and cash out the remaining equity. However, they must allow a six-month seasoning (waiting) period.
• Rate and term and simple refinance: This is a “no cash out” refinance for an existing FHA mortgage, in which the proceeds are used solely to pay off current mortgage liens and associated refinancing costs. There is no waiting period.

USDA Loans 

Backed by the United States Department of Agriculture, USDA loans are designed to help low-income homebuyers in rural areas. You must wait at least 12 months from the closing date of your current mortgage before you can refinance your USDA loan.

VA Loans 

VA loans are guaranteed by the U.S. Department of Veterans Affairs for eligible military members, veterans and surviving spouses. They come with no down payment and no mortgage insurance.

• Cash out: Refinances for more than the current loan balance, allowing the borrower to take part of the home equity in cash. Generally, you must wait 210 days after the first mortgage payment and have made at least six on-time payments, though some lenders may require seven payments and a 240-day seasoning period.
• Interest rate reduction refinances loan (IRRRL): It enables seamless refinancing to a lower interest rate or converting an adjustable-rate mortgage to a fixed-rate mortgage without a home appraisal. VA lenders usually consider your loan seasoned after 210 days and six consecutive payments. Still, borrowers with on-time payments can refinance between eight and nine months after their mortgage starts.

Jumbo Loans

Jumbo loans are nonconforming mortgages exceeding FHFA loan limits, used for properties too expensive for conventional loans. Jumbo loan refinancing rules vary by lender and there are no standard seasoning windows. Most lenders allow refinancing once you have sufficient equity, typically requiring an 80% loan-to-value ratio or less.

What Are the Best Reasons to Refinance?

There are several compelling reasons to consider refinancing your mortgage:

• Lower interest rates: If current interest rates are lower than the rate on your current mortgage, refinancing can save you money on interest over the life of your loan.
• Reduce monthly payments: By refinancing into a loan with a lower interest rate or a longer loan term, you can potentially lower your monthly mortgage payments.
• Access home equity: Cash out refinancing allows you to access some of your home's equity as cash, which you can repurpose for home improvements, debt consolidation or other financial goals.
• Shorter loan term: If your financial situation has improved since you took out your current mortgage, you can refinance into a loan with a shorter term and pay off your mortgage faster. You’ll also save money on interest.
• Drop private mortgage insurance (PMI): If you've built up enough equity in your home, refinancing can help you remove PMI from your monthly payments, lowering it.

What to Consider Before Refinancing

The point of refinancing your mortgage is to secure an overall better deal. You might want to consider the following:

Current Mortgage Rates

Monitor current mortgage rates to determine if refinancing makes financial sense. If rates have dropped significantly since you took out your mortgage, refinancing could save you money.

Closing Costs and Fees

These can quickly add up, including title searches, appraisal and application fees. Make sure to factor these costs into your decision and determine if refinancing will be financially beneficial in the long run.

Impact on Your Credit Score

Applying for a refinance will result in a hard inquiry on your credit report, which can temporarily lower your credit score. However, the impact is usually minimal and temporary. Still consider the timing because frequent refinancing may have a more enduring impact. 

Longer Repayment Period 

If you refinance into a new mortgage with a longer term, you may pay interest for a longer period, even if you've already made payments for several years. Consider how this relates to your money goals.

Prepayment Penalties

Some lenders charge prepayment penalties if you pay off your mortgage early. Check if your current lender has this policy before refinancing as this penalty can cancel any benefit of refinancing.

Home Equity

More equity in your home can lead to better refinancing options. Similarly, if you have little equity, refinancing may not be the best option.

Increased Overall Loan Fees

While refinancing can lower your monthly repayments, it may result in higher overall loan costs due to appraisal, title insurance and origination fees. Make sure to factor these costs into your decision.

Find the Top Refinance Companies From Benzinga’s Best Providers

Once you've determined that refinancing is the best option, it's time to begin your search for the ideal lender. Benzinga has curated a list of the top refinance companies to help you land the most favorable deal.

Mortgage Refinancing: Timeframes and Considerations

The minimum time frame for refinancing depends on your loan type. Conventional loans usually have the shortest waiting period, while government-backed loans like FHA, USDA and VA have stricter guidelines. Before you decide to refinance, consider factors such as current mortgage rates, closing costs and how it might impact your credit score. Weigh the pros and cons and determine if refinancing is right for you.

Frequently Asked Questions