When to refinance your mortgage (2024)

FAQs

How long should you have a mortgage before you refinance? ›

Rules for refinancing conventional loans

In most cases, you may refinance a conventional loan as soon as you want. You might have to wait six months before you can refinance with the same lender. But that doesn't stop you from refinancing with a different lender.

As a rule of thumb, experts often say that it's not usually worth it to refinance unless your interest rate drops by at least 0.5% to 1%. But that may not be true for everyone. Refinancing for a 0.25% lower rate could be worth it if: You are switching from an adjustable-rate mortgage to a fixed-rate mortgage.

An often-quoted rule of thumb says that if mortgage rates are lower than your current rate by 1% or more, it might be a good idea to refinance.

You might want to consider refinancing your mortgage in 2024, especially if you got your mortgage in the last year and interest rates fall, or your specific circ*mstances call for a new loan.

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.

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.

With a cash-out refinance, the borrower takes out a new mortgage for more than the previous loan, uses the funds to repay the old loan, and receives a lump sum cash payment for the remaining funds. As a result, a cash-out refinance increases your monthly payment and mortgage loan debt—please consider carefully.

Key Takeaways

Refinancing your home mortgage can make sense under different scenarios. You may be able to get a significantly lower mortgage rate, reducing your monthly payments and freeing up cash for other purposes. You may also be able to shorten the term of your loan, allowing you to pay it off sooner.

When a rate reduction is your goal, a good rule of thumb for a mortgage refinance, is to lower your existing interest rate by 1% or more. While a mortgage refinance is worth considering when you see this 1%+ reduction, there are other factors that need to be considered as well.

Is refinancing a home like starting over? ›

Once you refinance, it's like you're starting over. Say you've been paying off your old mortgage for 10 years, and you have 20 years to go. If you refinance into a new 30-year mortgage, you're now starting at 30 years again.

Lawrence Yun, chief economist at the National Association of Realtors, even told CNBC last year that he doesn't think mortgage rates will reach the 3% range again in his lifetime.

The best time to refinance depends on your personal circ*mstances, like how long you plan to stay in your home or how much left you have to go on your mortgage. It can take several years to recoup the cost of refinancing through your monthly savings.

You must be on the home title for at least six months for a cash-out refinance (some exceptions apply). Any time for a simple or rate-and-term refinance; after seven months for a streamlined refinance; after 12 months for a cash-out refinance (can vary by lender).

In most cases, you'll need to wait at least six months after buying a house before you can refinance. Some government-backed loans, such as FHA, VA, and USDA loans, may have different waiting periods ranging from 6-12 months.

Conventional loans – you can do a rate-and-term refinance right away if you want, but typically not with the same lender. That's because, before 6-months, the lender may lose their original commission. On the other hand, if you want a cash-out to refinance, you'll have to wait for at least 6-months.

With a shorter loan term, borrowers save money in the long run, but you'll have higher monthly payments. And, as with many refinances, you'll also have to pay closing costs to refinance from 30 to 15 years.

This is called the mortgage term and it can range from a few months to five years or longer. You have to renew your mortgage at the end of each term unless you pay the balance in full. You'll most likely require multiple terms to repay your mortgage in full.