How Long Should You Wait Before Refinancing Your Home?
What Is Home Refinancing?
Before refinancing your home loan, you need to know what this means. Essentially, refinancing is when a new loan is acquired to pay off the old loan. This can reduce interest, or it could make it so that you're able to pay a different monthly amount without collecting certain lending penalties.
The big reason to refinance is interest rates. However, other reasons homeowners refinance include:
- Cashing Out Part Of Existing Property Equity
- Monthly Payment Reduction Through Expanded Repayment Terms
- Protecting Existing Credit Scores When A Specific Time Period Has Elapsed
There are some good reasons to refinance your home loan, but not all situations where doing a refinance is possible represent your best choice in this area. With that in mind, let's look at a few other factors well worth considering in determining whether or not you should refinance.
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Setting The Right Financial Goals
If you pay off your mortgage in thirty years, you may pay half again the value of your property in interest alone. Whenever you're in debt, your goal should be to get out of it as quickly as you can under the law. Longer debt means more interest, which means more expense.
If you're in a situation where there are penalties for paying off debt faster than the mortgage term predicates, refinancing may be wise. To get ahead of this, some mortgages won't allow refinancing until four to six months have elapsed. However, that doesn't mean you're without an option.
All it means is you'll have to find another lender to buy up the previous mortgage at a different interest rate, or under different loan terms. Different kinds of loans have different advantages. Sometimes you can refinance such that just interest rates and payment terms change. Sometimes you need a non-conventional loan.
Whatever the case, finding ways of getting through your mortgage more quickly always makes sense. A very wise way to do this is through a cash-in refinance. That's where you pay in as much of the loan as you can to reduce what you owe, and expedite the repayment process. It's basically the opposite of a cash-out refinance, where you get a loan in excess of property value so you can use home equity for cash. Look, that's doable, but it expands your debt. In terms of refinance scheduling, for cash-in refinancing, Federal Housing Administration (FHA) loans require you wait a minimum of six months.
Avoid Pre-Payment Penalties
It is a bad idea to refinance if there are penalties associated with prepayment. When you're signing up for a mortgage, it's wise to determine beforehand if there are any associated penalties. If you're in one already and didn't look into this detail beforehand, you definitely want to confirm whether or not such penalties exist prior any sort of refinancing.
While pre-payment penalties are not quite as common as they were, they are definitely out there, and you need to be aware of them. Varying lenders can look over your loan to determine if going the refinance route is wise, or will cost you.
If such penalties are in place, you may not be able to refinance. Remember, neither lenders or loans are of the "one-size-fits-all" variety. There can be quite a lot of diversity in this financial area.
Following The Refinancing Rules
Another big determining factor regarding when you refinance pertains to the rules of a given lender. Sometimes qualifications are necessary for refinance. For such situations, seeking mortgage experts, consultation, and expertise from friends or family who have refinanced before makes a lot of sense.
Where there are rules, there are loopholes. However, it's the lender's prerogative to keep things buttoned up as tightly as possible. The way profit is made through such companies is twofold. Interest basically covers the costs of operation, but a lot of lending agencies leverage existing capital across the stock market.
What this means is that you may be able to find more leniency in loan terms through lending agencies that are doing well on the market. That said, such companies could be very scrupulous in asset management, and as a result have even more strict loan requirements; so do your homework here.
Refinancing Loans At The Right Time
Refinancing can be complicated, but in general it's pretty straightforward. In the right situation, refinancing can keep you from being a victim of penalties impacting credit. Also, you can save money in terms of interest. The primary reason to refinance is to avoid interest.
You're going to want to look at refinancing a loan in the four to six month range after you have initially been approved. You may want to wait longer if you're pursuing cash-in or cash-out refinance; it will depend on your situation. Through online research and consultation, you can determine what best fits your situation.
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