Is it OK to refinance your house after 1 year?
In many cases, there's no waiting period to refinance. Your current lender might ask you to wait six months between loans, but you're free to simply refinance with a different lender instead. However, you must wait six months after your most recent closing (usually 180 days) to refinance if you're taking cash out.
With a standard rate-and-term refinance, you'll need to wait at least 210 days from your original loan's closing date. If you're looking to take cash out with your refinance, you'll need to have lived in the home for at least one year and made on-time mortgage payments for the last 12 months.
For a simple rate-and-term refinance, you can refinance at any time if it's a conventional loan, after seven months if it's an FHA streamline refinance, after 210 days (or six payments, whichever is longer) if it's a VA loan or after 12 months if it's a USDA loan.
Refinancing will hurt your credit score a bit initially, but might actually help in the long run. Refinancing can significantly lower your debt amount and/or your monthly payment, and lenders like to see both of those. Your score will typically dip a few points, but it can bounce back within a few months.
A rule of thumb says that you'll benefit from refinancing if the new rate is at least 1% lower than the rate you have. More to the point, consider whether the monthly savings is enough to make a positive change in your life, or whether the overall savings over the life of the loan will benefit you substantially.
Refinancing allows you to lengthen your loan term if you're having trouble making your payments. The downsides are that you'll be paying off your mortgage longer and you'll pay more in interest over time. However, a longer loan term can make your monthly payments more affordable and free up extra cash.
In many cases, there's no waiting period to refinance. Your current lender might ask you to wait six months between loans, but you're free to simply refinance with a different lender instead. However, you must wait six months after your most recent closing (usually 180 days) to refinance if you're taking cash out.
Refinance closing costs commonly run between 2% and 6% of the loan principal. For example, if you're refinancing a $225,000 mortgage balance, you can expect to pay between $4,500 and $13,500. Like purchase loans, mortgage refinancing carries standard fees, such as origination fees and multiple third-party charges.
You don't need a down payment to refinance, but you'll likely have to come up with cash for closing costs. Some lenders let you roll closing costs into the mortgage to avoid upfront expenses. You can also try negotiating with the lender to waive them.
That means the mortgage rates will likely be in the 6% to 7% range for most of the year.” Mortgage Bankers Association (MBA). MBA's baseline forecast is for the 30-year fixed-rate mortgage to end 2024 at 6.1% and reach 5.5% at the end of 2025 as Treasury rates decline and the spread narrows.
Can you sell your house after you refinance?
Yes, you can sell your home after refinancing, but you may end up losing money on the refinance if you sell before you reach the breakeven point or you're subject to a prepayment penalty. You may have to wait if your mortgage contains an owner-occupancy requirement.
The Bottom Line
While applying to refinance can mean a short-term drop of a few points on your credit score, the long-term benefits outweigh the negatives if refinancing betters your financial picture. The impact to your score lasts a year at most. There's a quick bounce back if you stick to good financial habits.
Your lender may disqualify you from refinancing your mortgage if you carry too much debt. Your debt-to-income ratio must meet your lender's thresholds for you to qualify. Having a low credit score may also prevent mortgage lenders from approving your application.
MBA: Rates Will Decline to 6.1% In its March Mortgage Finance Forecast, the Mortgage Bankers Association predicts that mortgage rates will fall from 6.8% in the first quarter of 2024 to 6.1% by the fourth quarter. The industry group expects rates will fall below the 6% threshold in the first quarter of 2025.
Product | Interest Rate | APR |
---|---|---|
30-Year Fixed Rate | 7.19% | 7.24% |
20-Year Fixed Rate | 7.04% | 7.09% |
15-Year Fixed Rate | 6.66% | 6.74% |
10-Year Fixed Rate | 6.55% | 6.62% |
Economists do expect rates to gradually decrease this year, though. Forecasts from both Fannie Mae and the Mortgage Bankers Association predict the average 30-year rate will be at 6.4% by the end of 2024.
There's no hard-and-fast rule about whether refinancing is good or bad; as we've said, it's all dependent on your situation. In fact, there are a lot of great reasons to refinance, from saving money to shortening your term to taking out cash. Whether it's a good idea or a bad idea just depends on what's right for you.
Whether refinancing your home is a good idea depends on many factors, including current interest rates, the length of time you plan to live there, and how long it will take to recoup your closing costs. In some cases, refinancing is a wise decision. In others, it may not be worth it.
You pay closing costs and fees when you close on a refinance – just like when you signed on your original loan. You might see appraisal fees, attorney fees and title insurance fees all rolled up into closing costs. Generally, you'll pay about 3% – 6% of your refinance loan's value in closing costs.
DTI ratio: Your DTI ratio is the total amount of your monthly debt payments divided by your gross monthly income. This is what lenders look at when deciding if you'll be able to afford your mortgage payments. In most cases, the highest DTI you can have to get approved for mortgage refinancing is 43%.
How much should interest rates drop to refinance?
If interest rates have dropped since you first obtained your mortgage, a rate-and-term refinance can provide you with a lower rate. Ideally, that rate should be one-half to three-quarters of a percentage point lower than your current rate.
You can refinance as often as you like, as long as it makes financial sense (and you meet the lender's seasoning requirement). If your goal of refinancing is to save money, you'll want to consider the closing costs in comparison to your potential savings.
When you refinance, you are required to pay closing costs like those you paid when you initially purchased your home. The average closing costs on a refinance are approximately $5,000, but the size of your loan and the state and county where you live will play big roles in how much you pay.
You'll typically pay mortgage refinance closing costs ranging from 2% to 6% of your loan amount, depending on the loan size. National average closing costs for a single-family home refinance were $2,375 without taxes or recording fees, according to 2021 data from ClosingCorp, a real estate data and technology provider.
Conventional refinance: For conventional refinances (including cash-out refinances), you'll usually need at least 20 percent equity in your home (or an LTV ratio of no more than 80 percent).
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