Refinancing your home can come with a host of financial benefits. You could get a lower interest rate, pay off your loan faster, save a bundle in interest or convert some of your equity into cash. Regardless of your reason for wanting to refinance, it’s vital to know how long you have to wait to apply for a new loan or if there’s a limit on the number of times homeowners can refinance. You should also understand how refinancing could impact your credit health.
Can Refinancing Your Home Hurt Your Credit?
Refinancing your home can cause a slight dip in your credit score. When you apply for a new mortgage, a hard inquiry is generated and drops your credit score by a few points. The good news is hard inquiries only remain on your credit report for up to two years, and the impact is limited to 12 months.
Assuming you manage all other credit accounts responsibly and avoid opening several credit accounts in a short period, your credit score will rebound in record time.
Timings to Consider When Refinancing Your Home
How Early Can You Refinance?
It depends on the loan product. You may be able to refinance as soon as you leave the closing table and your loan is funded. However, you’ll most likely have to wait at least six months following closing to refinance.
How Often Can You Refinance?
You’re free to refinance your mortgage as often as you’d like. However, as mentioned above, many mortgage lenders often have mandatory waiting periods of six months or higher from the closing date.
How Long Do You Have to Wait Between Refinances?
Here’s a breakdown of the waiting period or amount of time you must wait to refinance by loan type – whether it’s a conventional loan or government-backed loan:
- Conventional Loans: There is no waiting period to refinance with conventional mortgages if you opt to use a different lender. However, using the same lender typically means you’ll have to wait between six to 12 months to apply for a new loan.
- VA Streamline Interest Rate Reduction Refinance Loan (IRRRL): The VA loan requires you to wait six months from the due date of the first monthly payment to refinance. Some lenders also request that you make 12 months of timely payments before they approve you for a refinance.
- VA Cash-Out Refinance: The same guidelines for VA Streamline IRRRLs apply. So, a six-month waiting period from the due date of your initial monthly mortgage payment or 12 months of consecutive on-time payments is required to qualify for mortgage refinancing.
- FHA (Federal Housing Administration) Simple Refinancing: You’ll need to wait until you’ve made six consecutive, on-time payments to refinance with this type of FHA loan.
- FHA Streamline Refinancing: This loan product also requires six consecutive, on-time payments and a 210-day waiting period to refinance (unless you’re applying for a conventional loan).
- FHA Cash-Out Refinance: You must occupy the property or use it as your primary residence for at least 12 months before you’re eligible for cash-out refinancing.
- USDA Non-Streamlined Refinance: Approximately 180 days of on-time payments are required for refinancing.
- USDA Streamlined-Assist Refinance: This USDA loan requires 12 months of consecutive, on-time mortgage payments to be eligible for refinancing.
- Jumbo Loans: The waiting period varies by lender, but the guidelines are generally the same as what you’ll find for conventional home loans.
Are There Any Risks When Refinancing Multiple Times?
Refinancing multiple times can be costly for a few reasons. You’ll have to pay closing costs each time, which could be costly. There’s also the risk of incurring prepayment penalties when you pay your loan off early. Furthermore, your credit score will take a slight hit, and you risk getting underwater on your home loan if you refinance several times and market conditions change for the worse.
Should You Refinance Your Home?
There are several reasons why refinancing your home could make financial sense:
- Your credit score has improved since securing your home loan, and you may qualify for better loan terms. According to myFICO.com, the average APR on a 30-year fixed-rate mortgage is 6.392 percent for borrowers with credit scores between 700 and 759. This figure increases to 7.213 percent if your credit score is between 640 and 659 or 7.759 percent if it’s between 620 and 639.
- Mortgage rates are lower than they were when you took out your home loan. A slightly lower rate could result in several thousand in cost savings over the life of the loan. Consider using a mortgage loan refinance calculator to determine if refinancing is a smart financial move.
- You want a longer term to make your monthly mortgage payment more affordable. For example, if you get a 30-year mortgage for $425,000 with a fixed interest rate of 5.5 percent, your monthly payment (principal and interest only) will be $2,413. But a home loan for the same amount with a 20-year repayment period comes with a slightly higher monthly payment of $2,923 (principal and interest only).
- You want a shorter term to save on interest and pay your mortgage off faster. A shorter repayment period means the lender will have less time to collect interest over the life of your loan, and will result in thousands of dollars in cost savings.
- You want to convert an adjustable-rate mortgage (ARM) to a conventional loan to get a more predictable monthly payment. ARMs offer a lower fixed interest rate in the beginning stage of the loan term, but it starts to fluctuate based on market conditions after some time. But by refinancing into a conventional mortgage, you’ll go from having uncertainty about your monthly mortgage payment to having a concrete idea of what you’ll pay in principal and interest for the remaining loan term. ill
- You have at least 20 percent in home equity in your and want to get rid of private mortgage insurance (PMI). (Keep in mind that FHA loans carry mortgage insurance for the life of the loan, so you may want to convert your current mortgage into a conventional loan).
- You want to convert your equity into cash through a cash-out refinance. Most lenders let you pull up to 85 percent of the equity you’ve built up in your home, and the funds can be used however you see fit.
However, you may not want to refinance if:
- You’ll be relocating soon, and the overall costs will outweigh the benefits of refinancing your home loan in the long run. On average, borrowers pay between two percent and five percent in closing costs, depending on their state of residence. So, refinancing a $375,000 loan means you’ll incur costs between $7,500 and $18,750.
- The numbers don’t make sense, particularly if you’ll end up paying far more in interest over time despite getting a more affordable monthly payment. This is usually the case if you’ve had your mortgage for some time and opted for an extended loan term.
- You can’t afford the monthly payment on the new loan or will only have minimal funds at your disposal each month once it’s paid. A shorter loan term means your monthly mortgage payment could be far more expensive than it was and possibly too much for your budget.
