Older couple cooking dinner at home

Could this be a great time to refinance? With rates starting as low as they are, it really may be. How soon can you take advantage and possibly get into a lower rate? Even if you can refi, does it make sense for you?

We’ll answer these questions and more.

When Can You Refinance?

You can put seasoning on a lot of things – tacos, hamburgers, a steak. Oh, and your mortgage can be seasoned, too. Did you know?

“Seasoning” in mortgage terms refers to how long you have to wait before you can refinance. It mostly applies to cash-out transactions, but it can also affect when you can have your equity recalculated based on a new appraisal.

Cash-Out Timeframe

If you’re looking to take cash out, you have to be on the title of the property for at least six months if you have an agency, jumbo or VA loan. If you have an FHA loan, the waiting period on a cash-out refi is one year.

On a rate/term refinance (taking no cash out of your equity), there’s no waiting period.

If you recently moved back into your former investment property, the FHA also requires you to prove you’ve lived there for at least a year. If you haven’t been back for at least a year, you can only do a rate/term refinance, and the maximum loan-to-value ratio (LTV) is 85%. In the case of a refinance, LTV is the ratio of the loan amount compared to the appraised value.

One thing to note is that if you inherited the property, there’s no waiting period necessary unless you had an FHA loan and rented the property out at any time since you inherited it.

Using a New Appraisal

If you’re looking to use a new appraisal to prove an increase in your equity that’s based on increased property value, there are special waiting periods involved depending on the type of loan you have.

If you have an FHA, a jumbo or a VA loan and you want a new appraisal to determine a value increase, you have to own the property a year before requesting the appraisal.

On agency loans from Fannie Mae or Freddie Mac, there is no specific timeframe you have to wait. The appraisal just has to be supported by changing market conditions and/or documented improvements made to the property.

Why Would You Refinance?

Now that you know whether you can refinance, it’s time to determine if you should. In making that determination, there are a couple of things you need to take into account: Why are you doing it – and is it worth the cost?

Here are the most common reasons people decide to refinance:

Lower Your Payment – A refi can be an opportunity to give your finances some breathing room. You can refinance your loan so that it has a lower monthly payment. And that extra cash can go toward your other financial goals, such as saving for a car, putting money into a retirement account or simply going on a dream vacation.

Lower Rate – The higher your interest rate, the larger your monthly payment. When rates drop below your current rate, it may be a great time for you to swoop in and get a lower one. It’s always good to keep track of interest rates so you know when you can save the most money!

Change in Loan Type – Sometimes we need a change of pace in life. If you’re interested in getting out of your fixed-rate loan, you may be the perfect candidate for an adjustable rate mortgage (ARM), which provides a lower interest rate than a fixed loan. After a period of time, though, this rate adjusts based on market conditions. Converting between adjustable and fixed can be a great way for you to save money.

Getting Rid of PMI – If you have an increase in property value based on a new appraisal, you might refinance in order to remove private mortgage insurance (PMI). Meanwhile, converting from an FHA loan to a conventional one once you reach 20% equity could help you ditch FHA mortgage insurance payments.

Cash-Out Refinance – If you want to convert the existing equity in your house into cash in order to make home improvements or boost a college fund, you can take out money with a cash-out refinance.

Consolidate Debt – If you have additional debt that has a high interest rate and you have enough equity in your home, you could consolidate that debt into your home loan and pay interest at a much lower rate.

Once you know why, you’ll know if it makes sense.

Things to Consider Before Refinancing

Before you’re ready to refinance, there are several things you need to think about, including the following:

  • Current EquityHome equity is the amount of your home’s value that you own. You’ll need 20% equity to remove your PMI through refinancing. If you’re interested in refinancing for a different reason, your situation will depend on specific loan programs. Reach out to a Home Loan Expert to discuss your options.
  • Credit Score – Much like buying a home, you’ll need to consider your credit score when refinancing a mortgage. You’ll need a credit score of at least 620 (or 580 in the case of an FHA loan) in order to refi your home.
  • Length of Time in the Home – Not only do you need to wait a certain amount of time before you can take cash out if you just took over the title, but you also need to consider how long you want to stay in your home and whether refinancing will make sense. For example, do you really need to pay more for 15 years of rate certainty if you only plan on staying in the home for five years? An adjustable rate mortgage (ARM) is a loan with a 30-year term with a low teaser rate that stays fixed for a period of time – typically five, seven or 10 years – before it adjusts up or down, depending on what the market is doing. If you only plan on being in the home for 10 years, you would be able to get a lower rate with an ARM then you could with a fixed-rate mortgage and be ready to move before it ever adjusts.
  • Other Outstanding Debt – A mortgage lender will have to take a look at your debt-to-income (DTI) ratio. The less income you have going toward debt, the better your chances will be to qualify. You can also look at taking equity out of your home for debt consolidation.

When Does It Make Sense to Refinance?

When you set up a mortgage, there are various associated costs you have to think about. Among the costs you can expect to pay are origination fees. These vary from lender to lender and depend on the type of loan you get. Other costs include appraisal fees, mortgage discount points, prepaid tax and insurance payments (in order to set up an escrow account), etc.

Once you know what the costs are, it’s a matter of just doing the math. If you’re doing a rate-term refinance with the goal of lowering your payment, simply divide your cost to close the loan by the amount you’re going to save every month.

This will tell you the amount of time to stay in the house in order to break even on the deal. If you see yourself moving before you break even, it may not be a great option.

Before you break out the slide rule, though, we can help you with this math problem. With Rocket Mortgage®, you can compare a customized mortgage solution with your current mortgage loan in order to quickly and easily see if refinancing makes sense for you. You can also fill out this short form to speak with a Home Loan Expert.

If you want more information, view our refinancing options. If you still have questions, let us know in the comments below.

 

Related Posts

This Post Has 90 Comments

  1. I currently have an FHA loan that was refinanced through Quicken Loans. We’ve owned the home over 4 years and it’s been almost a year since we refinanced. The market value has gone up significantly since we purchased and I was wondering what my options are for removing there PMI as we are now well above 20% equity. I refinancing out of the FHA loan the only option, since the loan is post July 2013? Or is there another way within Quicken Loans to convert the loan to a traditional loan. I have excellent credit, but am reluctant to do a straight refinance because I don’t want to give up my 3.25% interest rate and I am self employed which always makes it difficult to apply for loans.

    1. Hi David:

      I’m going to recommend you talk to one of our Home Loan Experts to go over your options. You do have a very good rate. With that said, we could help you do the math and see if you save more money by refinancing into a conventional loan and ditching monthly mortgage insurance payments. You can get in touch with us by filling out this form or calling (888) 980-6716. Hope this helps!

      Thanks,
      Kevin Graham

  2. Hello,

    I currently have an FHA 30 year (2006 origination) at 6.5%. I am interested in a cash out 5 Year ARM refi to pay off credit cards and do some work to my home. While I know there are many factors such as credit score and DI could you tell me what the maximum LTV for a 5 Yr ARM is?

    1. Hi Lesa:

      It depends on the type of loan you’re getting. For VA, it’s 100% LTV, but you have to have a military connection. For FHA the max LTV is 96.5%. For conventional loans, it’s 95% LTV. I hope this helps!

      If you’re interested in looking into your options, you can apply online through Rocket Mortgage. If you’d rather get started over the phone, one of our Home Loan Experts would be happy to help you if you give them a call at (888) 980-6716.

  3. I have a 30yr mortgage for 107,500. in 2010 rate 5.25 I have been paying whatever the principal is extra since the 1st payment today iam paying 300. extra a month balance is 75,000. should I just keep doing what iam doing or refin to a 15 yrs IF I KEPT DOING WHAT IAM DOING WILL I BE DONE IN 15 YRS OR SO IN THIS 30 YR ???

    1. Hi Tim:

      One way to check out your options yourself would be to use our amortization calculator and see whether it makes sense to keep doing what you’re doing or refinance into a 15-year term at your current mortgage balance. One thing I will tell you is that you could probably get a lower rate by refinancing into the shorter-term. You could very well end up paying less interest. If you decide to apply, you can do so online through Rocket Mortgage or give one of our home loan experts a call at (888) 980-6716. Hope this helps!

      Thanks,
      Kevin Graham

  4. My wife and I own a legal 2 family home in Long Beach, N.Y. (appraised @$675,000). Currently we have 30% equity. Excellent credit rating. We live there along with tenants below. Would like to refinance for a lower payment. I’m semi-retired and also collecting SS. My wife works full time and does well. Would there be any complications in doing a re-fi?

    1. Hi Alan:

      We can certainly help you look into your refinance options. Every loan process is different, but there’s nothing in your situation that sounds unusually complicated. I think the best way to get started would be to speak with one of our Home Loan Experts. They’ll be able to go over your situation in much greater detail and see about the loan option that would be best for you and your wife. You can get in touch with us by filling out this form or calling (888) 980-6716. Good luck and we look forward to working with you!

      Thanks,
      Kevin Graham

  5. For the past 4 years, we have owned a second home (condo) in Phoenix, AZ. (30 year fixed rate mortgage @ 5%. no PMI
    We would love to take advantage of the lower rates, but are wondering, what interest rates are currently for second homes and whether closing costs of a refinance will be so high that it isn’t worth doing.
    We have excellent credit.

    1. Hi Wally:

      We don’t give interest rate information on the blog because it’s so different for every individual situation depending on your qualifications. However, if you want to speak with one of our Home Loan Experts at (888) 980-6716, we would be happy to have someone go over your options. Hope this helps!

      Thanks,
      Kevin Graham

  6. Hi,
    We have a second home in Las Vegas, NV. It was purchased at more than $300,000. My balance is $296,000. FMV is around $250,00 only. This month, I will start paying $1,793. Is there a possibility of refinancing to lower my monthly mortgage, or lower my loan balance?

    Thank you very much.

    1. Hi Maricel:

      I see you’re working with us. I’m going to have someone reach out to go over any potential options you may have. Look for an email.

      Thanks,
      Kevin Graham

  7. I have a conventional 5.25% 30 year fixed on my home, purchased in 2009 for $263000, with a a balance of $189,000. Zillow estimate of value is now $489,000.
    Would like to refinance to a VA loan.
    Will getting a new loan with a new appraisal cause my property tax to be doubled or increase?

    1. Hi Gus:

      It’s hard to say for two reasons. First, while Zillow is a fairly close estimate in most areas, it may or may not exactly match up with the appraisal.

      Secondly, it depends on when your local municipality does tax assessments. Sometimes they only do new assessments when you sell the property. Other times, it could change every year. One of our Home Loan Experts may be able to give you more specific information based on your area. You can give them a call at(888) 980-6716 and we’d be happy to talk.

      Thanks,
      Kevin Graham

  8. I want to get away from Wells Fargo. I want to refinance I am upside down from $100k to $110k. I am out of bankruptcy from 2012 to 2015. Can you help? Speak English please and why can’t I get the equity out of my home…been in my home since 2004. Please help. Thank you

    1. Hi:

      You wouldn’t be able to get cash out if you’re upside down on your mortgage. However, we can definitely help you look into any other potential options. The bankruptcy might throw a curveball, but one of our Home Loan Experts could go over your vitals and see if we have any loan products that fit your situation. You can get in touch with us by filling out this form or calling (888) 980-6716.

      Thanks,
      Kevin Graham

  9. I have a HARP Mortgage that in the year 2035 a balloon payment will be due. My question is can I refinance through HARP. I have a 30 year mortgage. My interest is at 2% and I would like to keep it at this interest rate. Can you help me? Please send me your answer to my question via my email address, if this is possible. Thank you. Have a very lovely day. Chloe.

    1. Hi Chloe:

      I really don’t think you have a HARP mortgage if it’s a balloon payment at the end. Also, if you would like to keep a fixed interest rate, they’re a little higher than the interest rate you currently have. That said, you probably want to avoid the big payment at the end. We can definitely help you go over all of your options. My recommendation would be to reach out to one of our Home Loan Experts by filling out this form or calling (888) 728-4702.

      Thanks,
      Kevin Graham

    1. Hi Johnny:

      Unfortunately, we don’t do loans on mobile or manufactured homes at this time. I’m sorry.

      Thanks,
      Kevin Graham

  10. My question is , I have finished up a chapter 13 2 years ago I want to refinance my lone but I have had a problem with Quicken loan in the past so I am uneasy about dealing with them promises that they never seen through that cost me money I could not get back I am in a fixed rate mortgage and I’ve been in my house approx 11-12 years besides the chapter 13 I have never been late for a payment which was dued to the death of my daughter and the loss of there father who was a retired disable vet. I also am totaled disable and have adopted 2 of my grandchildren from the death of my daughter I am trying to be in a place where I can pay off my mortgage early I also been making an extra payment on my princple with my reg payment I would like to do the harp loan is that an option for me I truly do not want a loan to have to start all over again is there any help for me and the kids so we can be more confortable with our home.

    1. Hi Brenda:

      I’m sorry you’ve had a problem with us in the past. We would like to look into that and see what happened. I can tell you that HARP has certain very specific requirements but we can absolutely have you talk to someone about your options and see if we have something that meets your goals. Thanks for reaching out!

      Kevin Graham

  11. Hello,
    I am almost a year into a VA loan that I have done some major renovations too and my house has gone up in value about 25k without the listing of the renovations. I still have a little less than half of my VA loan left and was a combat vet. Is this a good time to refi? I would like to cash so I can pay down card debt and finish some minor detail on the house. My ultimate goal is to rent this one and buy some horse prop with a smaller house.
    A~

    1. Hi Aaron:

      Rates still remain extremely low. We can certainly help you look into your options. If you fill out this form or call 888-728-4702, we’ll be happy to help you in the morning. Happy Thanksgiving!

      Kevin Graham

  12. I am interested in refinancing my home and information regarding the HARP refinancing program that expires at the end of this year, 12/31/2016.

    1. Hi Smokey:

      We can certainly help walk you through your options. My one concern is that the term discharge often refers to bankruptcy. If you’ve had that in your past, there are certain restrictions around the timing for getting a new mortgage. A Home Loan Expert can help you go over all of this if necessary. You can get started online or call (888) 728-4702.

      Thanks,
      Kevin Graham

    1. Hi Terrell:

      It’s true that bankruptcy can throw off the loan process. Exactly how long you have to wait to get a new loan depends on the type of bankruptcy and how long since the bankruptcy was discharged or dismissed. On a typical chapter 7 personal bankruptcy, you wouldn’t have an option until one year after discharge. You have more options with an FHA loan after two years. Let me know the type of bankruptcy and I would be happy to give you more specifics.

      Thanks,
      Kevin Graham

  13. Thinking of refinancing my home loan. I owe $155,000 home valued between 250,000 and 279,000. My current loan is an adjustable that has been around 2.61% forever. I pay about $200 a month more towards principle than interest at this point in my loan. Thinking that the feds may raise rates ,should i refi to a longer term fixed rate loan. Im about 11 years into my current adjustable rate loan. With closing cost of a new loan and the loss of the amount of principle i would be paying is a new loan viable. I know it depends on how much the feds raise rates but with the last rate hike no difference in my monthly payment. Approximately what would a new 30 yr loan be monthly. My credit is excellent.

    1. Hi Mark:

      These are excellent questions you’re asking and I think you would really be helped by a conversation with one of our Home Loan Experts to figure out what might be the best possible option for you. It’s smart to look into fixed rates right now as no one knows what the Fed will do for sure, but rates probably won’t be going lower. Since you’re 11 years in, another thing you can take a look at is possibly shortening your term if you’re already at a point where you pay more toward principal than interest. However, getting another 30-year loan would keep your payment lower. These are options you can consider. Anyway, you can get in touch with one of our Home Loan Experts by filling out this form or calling (888) 728-4702.

      Thanks,
      Kevin Graham

    1. Hi George:

      That depends on the type of loan you’re looking at. I’m going to encourage you to talk to one of our Home Loan Experts to go over your goals with the refinance and look into your options. You can get started by filling out this form or give us a call at (888) 728-4702.

      Thanks,
      Kevin Graham

1 2

Leave a Reply

Your email address will not be published. Required fields are marked *

Win $4,000 this Holiday Season!
The Holiday Dolla-Day Sweepstakes!
Enter to Win No, Thanks