MORTGAGE

When Should you Refinance your Mortgage?

What you'll learn: What is a refinance? How soon can you refinance? Is refinancing for 1% worth it?

EXPECTED READ TIME:5 minutes

July 14, 2023

When Should you Refinance your Mortgage?

Mortgage rates have steadily declined in the months since closing on your home. Isn’t that how it goes? It can be frustrating, but don’t worry – the rate you have isn’t set in stone. But how soon after buying a house can you refinance? Is it worth it to refinance? How often can you refinance? These are great questions worth exploring as you decide what makes sense for you.

First: What happens when you refinance your home?

A refinance simply means you’re replacing your current mortgage with a new one. Though there are different types of mortgage refinances, the process for most is similar to when you got your original home loan:

You submit a loan application
Your lender reviews your current finances and payment history
Upon approval, you receive a new loan with a payment schedule based on the approved interest rate and term (and sometimes cash)

How soon can you refinance a mortgage after purchase?

There are some mortgage refinancing rules that affect that answer. It depends on your:

Current mortgage terms
Desired type of refinance

Typically, there is no waiting period on a rate-and-term refinance for a conventional mortgage. But when can you refinance an FHA loan? And how soon can you refinance a VA loan? Here are some common scenarios:

Current Mortgage Type	Refinance Type	Waiting Period
Conventional	Rate-and-Term	None
Conventional	Cash-Out	6 months
FHA	FHA Streamline	210 days with 6 consecutive payments
FHA	FHA Cash-Out	12 months with on time payments
VA	VA Streamline	210 days with 6 consecutive payments
VA	VA Cash-Out	210 days with 6 consecutive payments

Is refinancing for 1% worth it?

Now, let’s say it’s been six months since you closed on your mortgage and rates have dropped nearly one percent. Is a refi worth it? A traditional mortgage rule of thumb is to refinance only if you can lock in an interest rate that’s at least a full point below your current rate. That’s a helpful guide, but take the advice with a grain of salt. There are times when refinancing for less than a full point can make sense and others when it’s not wise even for a full percent decrease.

Consider refinance costs

A big consideration is whether the savings outweigh the costs of refinancing. One of the disadvantages of refinancing your home loan so quickly is that those closing costs – including appraisal fees, title fees, attorney fees, and lender fees – will likely have to be paid again for the new mortgage.

Think about your term

The term (length) of a mortgage is often another important consideration. When you refinance, you reset your term to the specifications of the new loan. If you’re refinancing from a 30-year term to another 30 years, it will take longer than originally planned to pay off your loan – adding interest payments along the way. While a shorter term can help you squeeze more savings out of a refi, this is less of a concern if you’re under a year into your mortgage. Great news for you!

Run the numbers

A robust refinance calculator can help you run potential scenarios. Plug in the details of your current loan and compare it to a potential refi. Here’s what it could look like refinancing a $500,000 loan for a one percent reduction after six months and $10,000 in closing costs:

	Current Loan	New Loan	Difference
Principal	$497,505	$497,505	$0
Length	354 months	360 months	6 months
Interest Rate	7%	6%	-1%
Monthly Payment	$3,327	$2,983	$-344
Total Payments	$1,177,585	$1,073,805	$103,780
Upfront Cost	$0	$10,000	N/A
Time to Break Even	N/A	29 months	N/A

Although it would take six more months to pay off the loan, the lower interest rate helps you save nearly $350 each month and over $100,000 over the life of the loan. It would take 29 months for the savings to outweigh the $10,000 in closing costs.

How often can you refinance a home?

The short answer: As often as it makes sense and your lender will allow. There are no official limits on how many times you can refinance a house, but that doesn’t mean it’s always wise (or that your lender will always approve an application). Requirements must be met and sometimes there are special criteria based on the type of refinance.

Is it worth refinancing?

Generally, refinancing is a safe bet if rates drop by a percent and you plan to stay in your home for at least the next few years. Here are some other guidelines to help decide if now is a good time to refinance:

You can afford the upfront costs of a new mortgage
You calculated your time to break even and don’t plan to sell your home before you can reap the savings
You’re refinancing into a shorter term and know you’ll pay less interest over the life of the loan
You can eliminate mortgage insurance in the process

New to refinancing? Download our free eBook: Ready, Set, Refi!

For more information about PenFed Mortgages:

PenFed Mortgage:

800-970-7766

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Disclosures

¹Except for holidays, rates are updated Monday through Friday at 10:15am EST. The advertised rates and points are subject to change. The information provided is based on 30_YEAR_FIXED_CONFORMING_POINT discount point, which equals percent of the loan amount, and assumes the purpose of the loan is to purchase a property with a 30-year, conforming, fixed-rate loan. Loan amount of $400,000; loan-to-value ratio of 75%; credit score of 760; and DTI of 18% or less. The property is an existing single-family home and will be used as a primary residence. The advertised rates are based on certain assumptions and loan scenarios, and the rate you may receive will depend on your individual circumstances, including your credit history, loan amount, down payment, and our internal credit criteria. Other rates, points, and terms may be available. All loans are subject to credit and property approval.

^*Prime Rate is RV Prime Rate % as of Boat Prime Effective Date . The APR for this Home Equity Line of Credit (HELOC) is based on prime plus a margin and can change monthly. Fixed Rate Advances will be amortized over the Fixed Rate Advance Term, with the payment consisting of principal and interest. Your Annual Percentage Rate for a Fixed Rate Advance will be calculated by adding your Prime Rate, your Margin, and the Additional Fixed Rate Lock-In Margin. Your Annual Percentage Rate for a Fixed Rate Advance shall not exceed 18% and shall be equal to or greater than 1020 ELOC OO CLTV 70 Rate % for primary residences and second homes.

Annual Fee: Notwithstanding the foregoing, an annual fee of $99 will be assessed on each account anniversary.
Home equity lines of credit (HELOC) are variable rate loans and the interest rate is subject to increase after consummation of the loan on monthly basis. Closing costs range between $500 and $8,500 for credit lines of $500,000. Contact a representative for additional details.

Appraisals: PenFed will attempt to establish value via an independent method. If that method is unsuccessful, or the value is not sufficient for the amount requested, an appraisal will be required regardless of CLTV. An appraisal is always required in the following circumstances:

For all loans with a loan amount greater than $400,000.

If an appraisal is required, it must be ordered by PenFed. You will be contacted for authorization and payment prior to ordering. Appraisal fees average $550 to $850 (some run higher).

Closing Cost Credit: PenFed will pay most closing costs associated with a home equity line of credit (HELOC), which includes credit report, flood certification, settlement/closing, property ownership and encumbrances search, recording, property search, and quick close. Member is responsible for any city, county, and/or state taxes if the subject property is located in FL, LA, MD, MN, NY, TN, or VA. If an appraisal is required, the member, who is responsible for the fee whether or not the loan closes, will pay the cost.

Interest may be tax deductible, consult a tax advisor for further information regarding the tax deductibility of interest and charges.

Fixed Rate Advance Lock-In You may lock in an Annual Percentage Rate for Advances during the Advance Period. During your Advance Period, you may choose to have three separate Fixed Rate Advances locked in at any one time, with a maximum of two new Fixed Rate Advances per calendar year. Each Fixed Rate Advance must equal or exceed Ten Thousand Dollars ($10,000.00) and you may not request a Fixed Rate Advance that would cause the amount you owe to exceed your Credit Limit. The only term option for your Fixed Rate Advance is 240 months (“Fixed Rate Advance Term”). However, the term of your Fixed Rate Advance cannot exceed your Repayment Period.

Fixed Rate Advances will be amortized over the Fixed Rate Advance Term with the payment consisting of principal and interest. Your Annual Percentage Rate for a Fixed Rate Advance will be calculated by adding your Prime Rate, your Margin and the Additional Fixed Rate Lock-In Margin. Your Annual Percentage Rate for a Fixed Rate Advance shall not exceed 18% and shall be equal to or greater than 1020 ELOC OO CLTV 70 Rate % for primary residences and second homes and 4.75% for investment properties.

Property Insurance: Property insurance is required.

Multiple PenFed Loans: Multiple PenFed Equity loans and HELOCs are available as long as the member and collateral qualify (except Texas). For Equity loans and HELOCs the total indebtedness cannot exceed $500,000 for all PenFed Equity and HELOCs combined.

PenFed does not lend on:

Mobile homes
Co-ops or time-shares
Properties that are currently listed on the market for sale
Commercial property or property used for commercial purposes, even if a residence is part of the property
Undeveloped property (land only)
Properties with more than 4 units

Properties that are currently under major construction/renovations: Property must be fully livable, with no safety issues. (Examples: no missing rails from stairs/decks, no open walls with wires showing, missing kitchen appliances/counters, missing bath fixtures or unfinished pool).

Additional limitations may apply

Home Equity Line of Credit:

This Account has a Draw Period of 10 years, followed by a repayment period of 20 years.
If only minimum payments are made during the draw period, the loan balance will not decrease.
In Texas, the maximum CLTV available is 80% on owner occupied properties. Additional restrictions apply in Texas, so please ask a representative for details.
In all other states, the maximum CLTV is 85% on owner occupied properties and second homes. Additional restrictions or requirements may apply based on application characteristics.
Property type of Condo has a maximum CLTV of 80%.
The maximum CLTV available is dependent on credit qualification.
Rates vary depending on owner occupancy and CLTV and other loan criteria.

Minimum Loan Amount Requirements in all States:

For an owner occupied property or second home the minimum loan amount is $25,000 and the maximum amount is $500,000 with a CLTV of 85% or less of the fair market value.

Other terms and conditions apply; call 844-918-4307 to speak with a representative for details. All rates and offers are subject to change without notice. To receive advertised product, you must become a member of PenFed.

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When Should you Refinance your Mortgage?

When Should you Refinance your Mortgage?

First: What happens when you refinance your home?

How soon can you refinance a mortgage after purchase?