Even if you’ve just purchased a home, watching mortgage rates drop makes it tempting to refinance your existing loan. After all, even a minor decrease can have a big impact when it comes to savings.
Cindy Couyoumjian, founder of Cinergy Financial and author of "Redefining Financial Literacy," used the following example to illustrate that point.
"Suppose your mortgage payment is $1,000, if you lower your interest rate by 1%, your payment will be reduced by $100," she explained. "That’s a $12,000 savings over 10 years. You need to look at the big picture when refinancing a home. A 1% drop in interest rate can translate to thousands of dollars saved over the life of the loan."
Using an online mortgage refinance calculator can help you determine what your new monthly mortgage payments could be and how much you might save with a lower interest rate compared to your original loan.
As with any mortgage refinance, understanding the terms of your current home loan as well as your mortgage refinance options will help you make the best decision. Curious about current refinance rates? Visit Credible to get prequalified rates without impacting your credit score.
How soon can you refinance your home after purchase?
How quickly you’ll be able to refinance your home loan depends on the type of mortgage you have. While some homeowners can refinance shortly after buying their home, others may have wait periods of at least six months or longer.
Take a look at how different types of home loans affect your mortgage refinance timeframe.
1. Conventional mortgage: If you have a conventional mortgage, meaning it’s backed by Freddie Mac or Fannie Mae, you may be eligible to refinance your mortgage as soon as you’ve closed on your home.
That said, some mortgage lenders have a "seasoning" period, which is a fixed amount of time you must wait before you can refinance your home loan. If your mortgage lender has a seasoning requirement, you may be able to skirt it by applying with a different lender. Of course, you’ll want to make sure your existing loan doesn’t have a prepayment penalty.
2. Government mortgage loan: These types of mortgages have differing refinancing timelines. Here are the guidelines:
- FHA Loans: If you have an FHA loan (insured by the Federal Housing Administration) and want to refinance by securing another FHA loan, you can do what’s called an FHA Streamline Refinance. This has a wait period of 210 days from the original loan's closing date but doesn’t require another appraisal. If you’re interested in a cashout refinance, in which you take out a new home loan for an amount higher than what you owe on your current mortgage and pocket the difference, you must treat the home as your primary residence for at least 12 months.
- VA Loans: If you have a VA loan (backed by the Department of Veterans Affairs), you must wait 210 days or a period that’s allowed you enough time to make six payments.
- USDA Loans: A USDA loan (backed by the U.S. Department of Agriculture), requires that your payments be made on time for 180 days prior to making the refinance request. Additionally, your existing home loan must have closed 12 months prior to initiating the USDA refinance request. Further, homebuyers must meet the USDA’s debt-to-income ratio and credit requirements, and the maximum loan amount cannot exceed the original loan amount at the time of purchase.
Have questions about refinancing your mortgage? Get in touch with Credible's experienced loan officers and find the answers you need.
What are today’s mortgage rates?
As the pandemic continues to cause economic uncertainty, mortgage and mortgage refinance rates remain comparatively low year-over-year.
After plunging to 50-year lows in January 2021, interest rates rebounded and hover near 3%. Rates are expected to remain at current levels as the Federal Reserve announced that it intends to keep long-term borrowing rates low indefinitely. Mortgage rates have barely risen above 5% since the 2008 recession, and the National Association of Realtors anticipates rates will average 3.1% for 2021, up from 3% in 2020.
If you think refinancing is the right move, consider using Credible. You can use Credible's free online tool to easily compare multiple mortgage lenders and see prequalified refinance rates in as few as three minutes.
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