Waiting to refinance a mortgage
Q: How long do I need to wait to refinance my mortgage?
A: While some lenders require you to keep your original mortgage for a certain period of time before refinancing, every mortgage is different. Check your loan documentation for any time restrictions. Generally though, there is no limit to how often you refinance. The decision to refinance has more to do with your goals and weighing the costs and benefits of doing so.
Let’s say you want to refinance to lower your monthly payment. You’ve had your current mortgage – a 30-year fixed rate - for a year, and some life change has left you feeling squeezed. Mortgage rates have dropped some. Here’s how much you could save in a month, and how long it would take to recoup your costs and actually start to save.
Current mortgage
Original loan amount: $150,000
Term: 30 years
Interest rate: 6.70%
Monthly Payment: $967.92
Refinanced mortgage
New loan amount: $148,386
Term: 30 years
Interest rate: 6.30%
Monthly Payment: $918.47
Monthly Savings: $49.45
Closing Costs (2% of the loan amount): $2,968
Break Even Point: 60 months, or five years.
If you plan to stay in your house longer than five years, refinancing might make sense; on the other hand, maybe you can find that extra $50 a month elsewhere.
Here’s another scenario: let’s say you have an adjustable-rate mortgage (ARM) you got a year ago, with an initial fixed term of five years. You now think you are going to stay in your home longer than five years and rates are rising; you’d like to lock in a lower interest rate today rather than face a much higher monthly payment in a few years.
Current Mortgage
Original loan amount: $150,000
Term:30 years
Interest Rate: 6.30%
Monthly Payment: $928.46
What if interest rates rise to 8 percent when the ARM resets?
Balance after five years: $139,896.08
Term left: 25 years
Interest Rate: 8.0%
Monthly Payment: $1079.74
Refinanced Mortgage
New loan amount: $148,108
Term: 30
Interest rate: 6.70%
Monthly Payment: $955.71
So, even though your current monthly payment may increase by $27, you may feel more secure knowing your monthly payment will remain the same over the life of the loan.
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