You can refinance even if your current loan is still fresh

With today’s low mortgage rates, you might be thinking it’s time to refinance.

But what if you just recently bought the home, or already refinanced once? Is it too soon to refinance? Can you do it again?

In most cases, you can refinance your mortgage as many times as you want.

But whether or not it’s worth it depends on the cost of refinancing versus the savings from your new, lower rate.

In this article (Skip to…)

• Waiting periods to refinance
• Rules for cash-out refinances
• No such thing as refinancing “too early”
• When refinancing is the right choice
• Today’s refinance rates

Rules about when you can refinance your home vary depending on the kind of loan you have. They also differ for rate-and-term refinances, which we’ll go over here, and cash-out refinances (see below).

• Conventional loan: No waiting period to refinance
• Government-backed loan: Six-month waiting period to refinance
• Some lenders enforce a six-month waiting period regardless of loan type

Many conventional mortgages do not require a waiting period to refinance. You might be eligible to refinance immediately after closing on the loan.

If your mortgage is government-backed, you may have to hold off a bit.

For example, FHA streamline and VA streamline refinance programs require you to wait at least six months after closimng your existing mortgage before you can refinance. 

Many lenders also have “seasoning” requirements. Oftentimes you’ll have to wait at least six months before refinancing with the same lender.

However, a seasoning requirement doesn’t stop you from getting a better deal with a different lender.

Feel free to shop around for a better rate and switch lenders if you can save.

Most lenders make you wait a minimum of six months after the closing date before you can take cash out on a conventional mortgage. 

If you have a VA-backed mortgage, you must have made a minimum of six consecutive payments before you can apply for a cash-out refinance. The refinance must also provide you with a net tangible benefit. 

Cash-out refinances require a six-month waiting period. You also have to build up enough equity in the home to qualify for a cash-out loan, which takes time.

Many homeowners use cash-out home loans as a way to get the capital they need to renovate or improve their houses using a new, low-interest mortgage.

Some homeowners use the money to consolidate debt, while others might use the loan proceeds to strengthen their investment portfolios or help pay for a child’s education.  

Whatever plans you have for the money, you have to figure out how the new loan will affect you financially. You’ll also need enough equity in your home to qualify for a cash-out refinance. 

Minimum equity requirements for cash-out refinancing

On most conventional mortgages, your new cash-out refinance loan amount can’t exceed 80 percent of your home’s value.

On September 1, 2019, the FHA capped its cash-out loan amounts at 80 percent of your home’s value.

Lenders set these limits to ensure you have some equity left in your home after you refinance.

However, the 80 percent rule isn’t set in stone on conventional loans. Texas is one exception, where there are different cash-out refinance rules.

Many lenders are also willing to let you borrow more than 80 percent of your home’s value if you pay private mortgage insurance (PMI) or pay a slightly higher interest rate. 

VA-backed mortgages are another exception to the rule. They allow cash-out loans up to 100% of the home’s value, although many lenders cap loan-to-value at 90%.

You’ll pay around 2-5 percent on average of your loan amount in closing costs. You can use these costs along with what you’re saving in payments to calculate how many months it will take to recoup the money and break even. 

• Let’s say you pay $5,000 (2 percent) in closing costs on a $350,000 refinance
• You lower your mortgage payment by $225
• To find your break-even point, you divide your total closing costs ($5,000) by how much you reduced your monthly payment ($225)
• $5,000 / $225 = 22.2
• It will take you approximately 22 months to recoup your closing costs and start saving money

If you don’t plan on moving during those 22 months, it’s probably the right choice to refinance. Any break-even below 24 months is generally considered a good benchmark. 

The bottom line is you can refinance as often as you like — as long as you’re meeting your personal financial goals.

In the mortgage industry, there’s no rule that says you’re only allowed to refinance once.