If you could pay off your mortgage any faster, would you? If you’re hoping to secure better terms on your mortgage, refinancing to a more favorable interest rate or loan term could allow you to do just that.
Over the past decade, mortgage refinancing has grown in popularity. In that time we’ve seen a considerable drop in mortgage rates. At the height of the housing crisis in 2008, rates averaged about 6% for a 30-year fixed-rate mortgage . Currently, the average rate is lower, at 4.29%. And while that may not sound like a significant dip, securing a mortgage at a lower percent could save you some serious cash.
Historically, the rule of thumb was that, in order to consider a mortgage refinance, home loan rates should be a minimum of 2% lower than your existing mortgage rate. However, the combination of larger mortgages and lower closing costs has changed all that.
For a jumbo mortgage, even a change of 0.5% may result in significant savings and a shorter time to break even. This is especially true if you can avoid paying lender fees. If you signed on for a higher rate years ago or your financial situation has improved, refinancing may be worth considering.
So, when can you refinance your home? There is no universal rule regulating how soon you can refinance a mortgage and it will usually vary by lender. However, some lenders have a waiting period of up to six months before you can refinance. There are exceptions to this, depending on the intent behind refinancing and the type of home loan you have.
If you’re interested in refinancing your mortgage, consider giving your lender a call to check their refinancing policies and waiting period guidelines.
Does It Make Sense to Refinance Your Mortgage?
When you’ve reviewed your specific loan information to determine when you’re able to refinance, the next step will be determining if refinancing is beneficial for you.
As you weigh the pros and cons of refinancing your home, it’s important to consider the cost, since you’re essentially taking out a new loan. If the cost of taking out the new loan outweighs the potential savings, refinancing may not be worth it. It is important to remember that in some cases, it can take a few years to recoup the cost of the refinance. A good rule of thumb is to calculate how many months it will take to cover the costs of refinancing. This way, you’ll know how many months or years you may want to stay in your home in order to make this move financially beneficial.
If you can afford to shorten your loan term when you refinance, it could add up to serious savings in interest. Decreasing the term of your mortgage from 30 years to 15 years will likely cost more on a monthly basis, but a 15 year loan can offer a lower interest rate and save thousands of dollars (or more) over the life of the loan. To see just how much interest you might save over the life of the loan through refinancing, check out a loan amortization calculator .
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Another common reason people refinance their mortgage loan is to convert between adjustable-rate and fixed-rate mortgages. Adjustable-rate mortgages may start out with lower rates than fixed-rate mortgages, but they can also shoot up because adjustable rates follow market fluctuations. Refinancing to a fixed-rate mortgage could result in a lower interest rate over the long run and help to eliminate anxiety about interest-rate increases in the future.
You may also be able to refinance for more than you currently owe, which is called a cash-out refinance. Most often borrowers use cash-out refinance mortgages as a way to pay off other high-interest debt or fund home repairs. This can be an excellent tool when used cautiously, but it’s best to proceed with caution in order to avoid depleting the equity in your home.
How to Refinance Your Mortgage
If you’ve decided that you want to refinance your mortgage, you’ll need to determine your reason for refinancing. Do you want to make home improvements? Are you hoping to fund some of your child’s college expenses? The purpose of the loan will inform the type of refinance you’re able to secure, namely whether it’s a cash-out refinance or just a good ol’ (no-cash-out) refinance.
Once you determine your goal, your primary focus will likely be determining whether the fees are worth what you’ll gain by refinancing. Before you start applying for refinancing loans, it’s worth organizing a few items ahead of the application process.
For starters, take the time to check your credit score and history. Your credit score is an important factor in determining whether you are approved for a home loan. Before you start researching lenders and comparing refinancing options, you may want to review a copy of your credit report and check for any errors.
While you take the steps to correct any errors on your report, it could also be worth taking steps to boost your score, which may involve paying down debt in order to reduce your credit utilization and debt-to-income ratio.
Another item on your to-do list should be to research your home’s approximate value. Check comparable sale prices in your neighborhood to get an idea of what your house is worth. If the value of your home has gone up significantly and improves your loan-to-value ratio (LTV), this could be helpful in securing the best loan terms.
After you’ve done those two things, take a bit of time to compare refinance rates online. Be sure to review all costs involved in refinancing, including APRs . Most financial institutions should be able to give you an estimate, but the accuracy may depend on how well you know your credit score and LTV ratio.
After that, you should be able to start the formal application process with the lender of your choice. Each lender may require slightly different paperwork, but it’s likely that most will require your pay stubs, bank statements, tax filings, and other financial information in order to review your application. Having all of your documents ready go could help speed up the refinancing process.
Once you file your application, the lender will usually take charge. They’ll usually send an appraiser for a home valuation. After the necessary documentation, such as, home appraisal and title report are submitted and approved, the loan closing documents are prepared for signing. The closing is then scheduled with the escrow company or real estate attorney , depending on your state. When the refinanced loan documents are signed, there is a three-day waiting period referred to as the “Right To Rescind.” This gives anyone who refinances their Primary Residence three days to think over the transaction even after signing on the dotted line.
The process of refinancing a mortgage can take anywhere from 30 to 90 days, depending on your diligence, the complexity of the loan, and the efficiency of the lender or broker.
Refinance Your Mortgage with SoFi
If you’re ready to refinance your mortgage, consider SoFi, where you can refinance with no prepayment penalties. The application process is painless and you can find out if you pre-qualify for the loan in just minutes.
Applications typically close in less than 30 days. At SoFi, you can choose between 15- and 30-year mortgages and either fixed or adjustable interest rates, so you can choose the option that works best for you.
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SoFi Mortgages are not available in all states. Products and terms may vary from those advertised on this site. See SoFi.com/eligibility-criteria#eligibility-mortgage for details.
Many factors affect your credit scores and the interest rates you may receive. SoFi is not a Credit Repair Organization as defined under federal or state law, including the Credit Repair Organizations Act. SoFi does not provide “credit repair” services or advice or assistance regarding “rebuilding” or “improving” your credit record, credit history, or credit rating.For details, see the FTC’s website on credit.