Though it may come as a surprise, there is no limitation to how frequently you can refinance your home. You can refinance as often and freely as you like so long as it financially makes sense to do so. Here are some things to consider before you move to refinance your mortgage.
1. What are the closing costs?
Are you throwing good money after bad? If you recently paid fees on your last mortgage, you may lose out by refinancing again just a short time later. A big payment reduction or a lender credit refi-scenario, however, can help make things worthwhile.
2. Will there be an early payoff fee?
An early payoff fee is not to be confused with a prepayment penalty. A prepayment penalty prohibits you from prepaying any of your principal without incurring a penalty before the specified timeframe is up. An early payoff fee is paid to the originating mortgage company on a loan that only lasts on the books for just a few short months. An early payoff fee can generally be charged if the loan is only up to 6 months old, but can be imposed in timeframes as short as three months. You may be able to work with the original lender, however, to avoid being charged as they can typically absorb any early payoff fee.
Mortgage pro tip: Mortgage companies know financial circumstances change as does a homeowner's need to borrow money. If your financial circumstances have changed, it is your right as a homeowner to refinance your house.
3. Will you need impound account monies?
Impound accounts are set up by your lenders to pay off expenses like property taxes and homeowner's insurance. For instance, if you are refinancing your home from Feb. 1 through April 10 or from Oct. 1 through Dec. 10, first installment property taxes will be included on your loan estimate at the closing table. Let's say, for example, you bought your home in June. That same year interest rates dropped and you decide to refinance your house just few months later. Your closing is slated for Nov. 1. As a result, your escrow company is going to collect first installment property taxes even though they are not due until Dec. 10. Title/escrow companies are required to collect for the first installment and second installment of property taxes when refinancing in those calendar months. The previous loan transaction you may have completed earlier in the year may not have collected for a tax installment as it may not have been due at the time.
4. Will your closing process be different?
Was your last mortgage transaction before Oct. 1, 2015? If it was, plan for a different mortgage loan closing process. The Consumer Financial Protection Bureau's most recent change to the closing process now requires a borrower to be more involved.
The closing process, for instance, now requires borrowers to e-consent to various consumer and financial disclosures. Additionally, a closing disclosure is now sent by the lender three days before your final settlement, which also must be acknowledged and executed online. While these changes are meant to make it easier for a borrower, some consumers might find the process of consenting to online disclosures a little irksome. However, it's the new way mortgage loans are originated.
Here are some other factors to evaluate.
- The housing market: Your home may have appreciated in value from the last mortgage transaction, potentially moving you into a different loan-to-value parameter and subsequently creating a financial opportunity.
- Loan purpose: If you previously did a cash-out refinance in excess of $417,000, you might benefit by refinancing again into a rate and term refinance. On loan sizes greater than $417,000, there is a substantial pricing difference from a cash-out refinance loan-to-value requirement versus a rate and term refinance loan-to-value requirement.
- Rates: Even as little as a 0.25% reduction in your interest rate can make a difference -- if you can negotiate with the lender to pay your closing costs, you're likely benefiting. It helps, too, to have a good credit score, since they generally entitle you to better terms and conditions on a mortgage. You can see where you stand before you refinance by pulling your credit reports for free at AnnualCreditReport.com and viewing your credit scores for free on Credit.com.
The decision to refinance depends on your circumstances -- and your ability to make a sound choice when evaluating them. Furthermore, it can help to stay in regular communication with your preferred lender. Checking in every six months can be worth the effort, as interest rates are always in flux and underwriting is slowly beginning to loosen.
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