How Quickly Can You Refinance a Mortgage?

You can refinance your existing mortgage within 6 to 24 months after getting your initial home loan. The timeframe depends on the type of mortgage you have and the terms and conditions that are applicable. 

Always keep an eye on favorable interest rates to lower your monthly payment and help lighten your budget. A refinance loan can leave you with more disposable income for other necessities. 

What Is Mortgage Refinancing and How Does It Work?

According to Federal Reserve Economic Data, the median selling price of houses in 2022 was $428,700. It is expected to be higher by the end of 2023. Even if you exclude mansions and expensive waterfront properties, the median price still works out to $344,141.

Unless you had a few hundred thousand dollars sitting in the bank ahead of time, you likely applied for a personal mortgage when you first bought your home. Then, with the financing of the bank, you closed on the property and agreed to make on-time payments every month until the loan was paid off — typically, 30 years. 

Make mortgage refinancing work for you 

With mortgage refinancing, you are not stuck with the initial 30-year loan. When applying to refinance your private mortgage, you’re essentially taking out a second mortgage. This second mortgage is then used to pay the outstanding balance on your original loan.

Steps to refinancing a mortgage usually require you to apply for a new loan and wait for the underwriter’s approval. It’s a necessary step to re-work your household finances and align your mortgage payments with your income. 

Understanding The Two Types of Mortgage Refinancing

Many mortgage borrowers talk about refinancing after 10 or 15 years. But what a lot of them don’t realize is that not all mortgage refinancing looks the same. There are two main ways to refinance a mortgage. 

Rate-And-Term Refinancing

Rate-and-term refinance is the traditional approach to refinance rates. With this, you’ll take out a second mortgage with all the changes you want and need. For instance, you may want lower interest mortgage rates or a shorter repayment term.

With the money from your second loan, you can refinance rates and pay off the first one. You will also be backed against the value of your property. From there, you’ll be able to enjoy the benefits of your newer, and likely more affordable, loan.

Cash-Out Refinancing

Who wouldn’t want an extra $20,000 in cash? Cash-out refinances can be used to renovate and remodel your home or to pay off an existing loan; for example, student loan refinance. Cash-out refinancing allows you to tap into the equity you’ve already built.

Here’s an example of how refinance loans might work in real life:

Let’s say that you have a $300,000 mortgage. So far, you’ve paid $180,000. You could apply for a loan refinance for the remaining $120,000. Or, you could borrow a little more than what you owe.

Going back to our previous example, if you refinance for $150,000, you can use the proceeds from your cash-out mortgage to pay the outstanding $120,000 while pocketing the extra $30,000. If you’re planning for renovations or a trip abroad, cash-out refinance can give you more liquidity. 

When Can I Refinance My Mortgage?

When can I refinance a conventional loan?

You can refinance your conventional loans within six months from closing, if you want to refinance with the same refinance lenders. Alternatively, you can refinance immediately with a different lender. If you want a cash-out, however, then you must wait for 12 months. 

When can I refinance FHA loans?

To refinance a Federal Housing Administration loan, you must wait for six months. You must also make sure that all monthly payments during these 180 days were made on time. 

Refinancing from an FHA to another FHA loan requires six months while refinancing to an FHA Streamline requires 210 days. For an FHA cash-out refinance on an FHA loan, you must have completed 12 months of mortgage payments.  

When can I refinance a VA loan?

A VA cash-out refinance allows eligible veterans to access the equity in their homes. With a VA cash-out refinance, you can refinance your existing mortgage and take out cash from the home equity at the same time.

For any type of VA loan refinance, you must wait for 210 days before you can refinance it from the Department of Veterans. In addition to the 210-day waiting period for refinancing any type of VA loan, to qualify for a VA cash-out refinance, you must have sufficient equity in your home and a low DTI is favorable — typically, under 41%.

While the VA does not set a minimum credit score, lenders have their own requirements. These scores can vary but are often around 620. 

When can I refinance a USDA loan?

A USDA streamlined and non-streamlined refinance requires 180 days. In the case of the streamline assist refinance, the waiting time is 12 months.  

When can I refinance a jumbo loan?

A jumbo loan refinance is similar to a conventional loan and you can refinance any time you want. However, jumbo loans are riskier and the refinance process could be longer and more demanding. 

Why Should I Decide to Refinance My Mortgage?

At first glance, mortgage refinancing might seem a bit counterintuitive. After all, is it really a good idea to pay off a six-figure debt with more debt? 

Even though it’s natural to have some doubts, there are several compelling reasons to consider a mortgage refinance. 

You may lower your monthly payments

The average American household is spending $1,784 a month to finance housing. Within that number, $1,050 is going towards housing-related payments in particular. This represents 34.9 percent of most people’s budgets and is by far the largest expense that Americans are paying for. 

You may reduce your interest

Refinancing your current loan can help you bring down costs by reducing your interest payments. If you want to free up money for savings, maintenance costs, or property taxes, mortgage refinancing can thus help you do it. 

Here’s an example of this at work. Let’s say you took a $300,000 mortgage on a 20-year term a few years ago, when your credit wasn’t as strong as it is today. Your interest comes out to $18,000 at a rate of six percent.

Let’s assume that your current financial has since improved. You’ve had a few promotions at work and you’ve paid down your student loans. Your credit card debt has also shrunk down to more manageable levels. 

The bank may now be willing to offer you a lower interest rate, letting you invest the extra disposable income or put a few thousand dollars aside, in savings.

You may save on insurance costs

Money is a sensitive subject for some. Thanks to a 2021 survey, we now have data confirming this. 60 percent of surveyed Americans get anxious at the thought of their finances. Meanwhile, 50 percent of people in the same survey talked about how discussing money was a source of stress. This anxiety is rooted in many of the same causes, such as not having enough money, debt consolidation, and the stress of managing monthly payments on time, back credit cards, incomes, and expenses. 

When it comes to homeownership expenses, mortgage payments are just the tip of the iceberg. You’ve likely been paying a few hundred dollars a month for private mortgage insurance as well. Most mortgages waive PMI with a down payment of 20% and more on the value of the house. 

However, there is another way to lighten up your monthly expenses. If you’ve built up enough equity in the meantime, your mortgage refinance could let you opt out of those mortgage insurance payments. Mortgage refinancing makes it possible for you to eliminate at least one major housing-related cost.

You want to own your home sooner

Some people refinance to save money. Others refinance to take full ownership of their property in less time. 

Let’s say that you took out a 30-year mortgage. After 10 years, you’ve moved up the corporate ladder and interest rates have gone down significantly. Now you’ve got two choices. You can re-up for another 30 years while paying less on a month-to-month basis. Or, you can keep paying the same amount as before and be mortgage-free in 20 years instead of 30.

For many Americans, owning a house is the first step toward financing a comfortable retirement. If you’re the type of person who hates owing money to anybody, mortgage refinancing can help you pay off a significant debt in less time than you may have otherwise thought possible.

You want to switch to a fixed-interest rate

For many homeowners, adjustable-rate mortgages were their way of gaining entry into the market. After all, low starting rates and affordable payments can be difficult to pass up when you’re buying a home. Even so, adjustable-rate mortgages come with payment amounts τηατ fluctuate wildly on an annual or monthly basis, based on inflation. We have witnessed high inflation rates in 2022 and 2023, which translated into increased interest rates. 

With a fixed-rate mortgage, your interest rate will stay the same throughout the lifetime of your loan. If you want to introduce some predictability to your housing costs, switching to a fixed-interest mortgage can save you money.

Υou want to cash out on your equity

When you refinance your mortgage, you can tap into the equity you’ve already built with a cash-out mortgage. 

Let’s say that you’ve put $200,000 into your $300,000 mortgage. What would you do with that extra $50,000? You can make home improvements, kitchen and bathroom remodeling, or invest money in your 401(k) for retirement. 

You want to make a larger down payment

Some people inherit money or sell a property. They can choose to use that money to make a significant down payment on their mortgage and lower their monthly payments or even reduce the mortgage timeframe. 

If you have come up with a large amount of money, you can refinance your mortgage with a large down payment and benefit from a lower interest rate and a shorter payment period. 

5 Factors to Consider When Mortgage Refinancing

Like any financial tool, refinancing your mortgage does come with certain considerations. Here are some key factors to keep in mind as you explore your options. 

1. Closing costs

According to Business Insider, the average closing costs in 2021 came out to $6,905. Even though you technically own the property you’re taking a mortgage out against, you could be expected to pay closing costs.

In the absence of a real estate agent, you may be able to save some money on closing costs. Of course, you’ll need to factor in these fee expenses as you think about the implications of refinancing on your wallet.

2. Prepayment penalties

Because mortgage lenders make their money through interest payments, early repayments will often have the net effect of making them lose money. To offset the loss of those interest payments, lenders often charge prepayment penalties.

Depending on the agreement you’ve made with your lender, prepayment penalties can potentially offset the savings associated with refinancing. Any calculations you make around your new mortgage will have to factor in these penalties.

3. Your Break-Even Point

To ensure the best balance transfer when you refinance, you’ll want to understand your break-even point.

If you hate your job and are actively planning to accept the first out-of-state offer you can, you may want to hold off on your refinancing plans. It only makes sense to refinance if you’re planning to stay put for at least a few more years.

4. Your credit score

If your credit score has improved since your initial mortgage application, pursuing a rate reduction refinance could be a prudent decision, as you stand to gain more favorable lending terms. This improvement in creditworthiness opens up opportunities and offers to explore cash-back credit options or rewards credit cards, providing additional financial benefits. 

By leveraging a higher credit score, you may qualify for enhanced cash-back rewards or more lucrative credit card perks, further optimizing your overall financial strategy.

You must be financially stable

To give yourself the best chance possible, you’ll need a steady income and a reasonable debt-to-income ratio. Lenders may be reluctant to approve your mortgage if they see signs of financial instability.