While you can legally refinance at any time, there may be some costly consequences to this decision. When considering refinancing, the more relevant question is how long “should” you wait before refinancing again. Only a few lenders are likely to approve refinancing if you have been in your current mortgage for less than a year. Explore restrictions with your current lender to understand your refinancing options.
A prepayment penalty is a clause in your mortgage contract stating a penalty if the mortgage is paid off faster than previously agreed. Although prepayment penalties don’t prevent refinancing, it makes refinancing a costly and less attractive option. Prepayment penalties may be expensive, often a six month’s interest charge on your current mortgage. In order to avoid this extra expense, delay refinancing a few years. Many borrowers do not realize prepayment penalties are a part of their mortgage contract. It is important to check with your current lender before starting the refinance process and potentially losing money.
Concerns to Consider before Refinancing
When considering refinancing, it is vital to determine if this action will you save money. Generally, only contemplate refinancing if you can decrease your current mortgage rate by a full percent. Three things determine your ability to save money in refinancing: mortgage rate, closing costs and how long you expect to live in the home. Evaluate these factors and determine how long it will take for your refinancing savings to exceed your closing costs.
While some may believe you shouldn’t refinance again until reaching the break-even point on your last loan, this is not technically true. Analyze both your last refinance and your current refinance situation to determine if refinancing is worth the hassle. Your current loan already accounts for the costs of your last refinance. If you refinance again, your new savings are added to the savings received in your current refinancing. There are many mortgage refinance break-even calculators available online.