The question “how soon can you refinance a mortgage?” depends on the type of mortgage you have.

If you’ve only recently joined the ranks of mortgage-paying homeowners, you might be curious about a few things:

Exactly how soon after your first mortgage can you refinance? How long do you need to wait if you want to refinance? As a homeowner, what factors do you need to consider before refinancing a home loan?

Let’s dive into these questions about refinance loans.

Why Should You Refinance Your Mortgage?  

When you refinance your mortgage, you exchange your old mortgage for a new one. Your bank or lender pays off your old mortgage and replaces it with a new one. In other words, your lender uses the proceeds from the new loan to pay off the existing loan.

Most borrowers choose to refinance so they can lower their interest rate, lower or extend their mortgage term or turn their home’s equity into cash. 

Ultimately, refinancing a mortgage can allow you to save money, pay off your mortgage faster and/or switch loan types (such as from a 30-year mortgage to a 15-year mortgage). You may also use a refinance to buy other things you want with your home’s equity. You may want to use a refinance to get rid of private mortgage insurance (PMI). 

Learn more about other reasons for refinancing your mortgage.

When Can You Refinance Your Home?

How soon you can refinance your mortgage depends on your lender and the type of refinance you want. Most lenders won’t consider refinancing a mortgage that they keep on their books until a bit of time has passed. The actual time frame usually lands somewhere between 120 and 180 days since the note date of your loan. 

If you’ve only had your mortgage a month or two but you want to refinance, you’ll almost certainly need to find a new, entirely different lender that is willing to refinance your existing mortgage.

Rules for Different Types of Loans

Take a look at the general refinance rules for various types of loans, though you will want to check with your mortgage lender for its specific timeframe.

  • Conventional loans:  You can usually refinance a conventional loan, also called a conventional mortgage, as soon as you want. You might have to wait six months before you can refinance with the same lender but you can choose to refinance with a different lender.
  • FHA loans: You must wait 210 days to refinance a FHA loan with a FHA Streamline Refinance.
  • VA loans: Refinancing to a VA loan or refinancing from one VA loan to another requires a 210-day waiting period. 
  • USDA loans: Refinancing from a USDA loan to a USDA streamline assist refinance requires you to make 12 consecutive on-time payments (usually 12 months of payments). 
  • Jumbo loans: Just like with conventional loans, you may refinance a jumbo mortgage whenever you want (in most cases). 

What Should You Consider Before Refinancing? 

You may want to take a few things into consideration before you rush headlong into refinancing. Consider the costs of refinancing, your savings over time, the potential effects of paying your mortgage longer and whether you want to tap into your home’s equity. Know that it doesn’t always make sense financially to refinance — it all depends on your personal situation.

Refinance Costs

Remember the original fees you paid to get your original mortgage? These could include origination fees, taxes, home appraisals and more. You may want to double check that the refinance costs make sense for the number of years you’ll stay in your home and how much you’ll save on your monthly payment. Calculate how long it’ll take for you to recoup those refinance costs.

Your Savings Over Time

Calculate how much you’ll save over time if you choose a lower interest rate or shorten your mortgage term. 

For example, let’s say you bought a home for $200,000 in late 2018. You put 20% down and took out a $160,000 30-year mortgage at a fixed rate of 4%. Your monthly payment is $955 and will cost you a total of $343,739 over the life of the loan (not including taxes and insurance). 

Let’s say you choose to refinance at 3%. Your monthly payments would drop to $843 and you would pay $303,555 over the life of the loan amount (not counting taxes and insurance). 

Determine your cost savings before you choose to refinance.

Effects of Extending Your Loan Term

How will refinancing affect your loan term? Let’s say you’ve been making your current 30-year mortgage payments for five years and only have 25 years left. Once you refinance, you’ll start all over again at 30 years. Yes, a new interest rate might save you money from month to month, but do you save money on the overall life of the loan or not? Make sure you factor in the five extra years of loan payments and the interest that has already been paid.

Your Home Equity 

You may want to use your home equity to pay off other personal debts, such as car loans or credit cards. You can tap into your home equity through second mortgages, home equity lines of credit and cash out refinances.

You can figure out how much equity you have in your home by subtracting the amount you owe on all loans secured by your house from its appraised value. In other words, let’s say you have $100,000 on a mortgage for your home, which was recently appraised at $200,000. Your home equity is $100,000.

You can generally borrow around 80% of your home’s value, minus what you owe on your mortgage. Determine how much you might be able to borrow.

Will Refinancing Affect Your Credit Score?

Taking on new debt typically causes your credit score to dip due to a hard inquiry on your credit report. 

The money you save through refinancing usually outweighs the negative effects of a small credit score dip. Your credit scores will likely improve as the result of a strong payment history as you pay off your mortgage.

Keep all of these hard inquiries from hurting your credit score by submitting all loan applications to different lenders within a short period. Most credit scoring models treat loan inquiries within a 45-day period as one inquiry, which doesn’t negatively affect your credit score as much. You want to avoid spreading out your applications to several lenders over a few months.

The Most Important Variable to Consider 

For a quick refinance scenario, the most important factor—and probably the most difficult hurdle to clear—is going to be the loan-to-value ratio (LTV) for your prospective new mortgage.

If you made a significant down payment the first time around, or if your home has suddenly appreciated in value, you may be in the clear even if you haven’t held your mortgage for very long—especially if you aren’t looking to take cash out. But most lenders are going to want to see an LTV of 80% or less for a cash-out refinance, but a rate/term refinance can go up to 95%.

From a lender’s perspective, the less equity a homeowner has in their home, the riskier it is to loan them the funds to finance that home’s purchase. Let’s say you made a 20% down payment on a $200,000 home and put $40,000 of your own money into the place. A homeowner who made a 3.5% down payment on that same home would only have invested $6,000. If times get tough, it stands to reason that the homeowner with more money invested in her home will be less willing to just walk away from it. Lenders don’t want to deal with foreclosures.

If you currently owe more than the LTV limit your lender prefers or if cashing out the equity you do have in your home would put you over that amount, it’s not likely that you’ll find a lender willing to offer you a loan to refinance just yet.

Refinancing Isn’t Free 

Refinancing your existing mortgage can save you money or give you access to needed funds. But the truth of the matter is that refinancing isn’t free. 

Just like your first mortgage, there are closing costs when you refinance. Often, the closing costs for your refinance can be rolled into the mortgage itself. So you won’t necessarily wind up paying out-of-pocket. But refinancing your mortgage to drop your interest rate 0.5% might not be worth incurring thousands of dollars in closing costs.

A prepayment penalty is more uncommon these days than it used to be. Still, it’s worth it to double-check the fine print for your existing mortgage. Your current lender could charge you a fee to pay early. 

So, how soon is too soon to refinance your mortgage? More importantly, when is the right time to refinance?

As with so many things, the answer will depend on your individual goals, financial circumstances and the rate environment. For example, you may ask yourself, “Are rates lower now versus when I took out my original mortgage?” 

Refinancing your mortgage could help save you money or put you on the path to meeting your long-term financial goals. 

A refinance can save you a lot of money or give you access to needed funds for whatever you want — that second garage or kitchen remodel you’ve always dreamed about. 

Our mortgage experts can help you refinance an original purchase you’ve already made with Morty. We’ll help you determine whether a refinance makes sense for your personal  and financial situation.