When Can You Refinance a Home Loan?

You may be able to refinance your home loan as soon as you have equity in your home. Check out this blog post to learn more about when you can refinance your home loan.

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When You Have Equity

You can refinance as soon as you have equity in your home. Equity is the portion of your home’s value that you own outright, or the portion that you’ve paid off through your mortgage. For example, let’s say your home is worth $200,000 and you still owe $100,000 on your mortgage. You have $100,000 in equity.

When You Have a Fixed-Rate Loan

A fixed-rate loan has an interest rate that remains the same for the entire term of the loan. Your monthly payments will be the same every month, and the total amount you pay in interest over the life of the loan will be predictable.

The most common type of fixed-rate mortgage is the 30-year loan, but you can get loans with terms of 10, 15, 20, 25, or 30 years. So if you want shorter payments or want to pay off your house faster, you may want to consider a shorter-term loan. Keep in mind that shorter-term loans typically have higher monthly payments because they have less time to accumulate interest charges.

When You Have an Adjustable-Rate Mortgage

If you have an adjustable-rate mortgage, when (and how often) you can refinance depends on the terms of your loan.

Most ARMs give you the option of refinancing at certain points during the loan term. For example, a 7/1 ARM can usually be refinanced at the end of years 3, 5, 7, or 10. In some cases, you may be able to refinance sooner if interest rates drop dramatically.

Other ARMs may only allow you to refinance once during the life of the loan. So if interest rates go down shortly after you get your mortgage, you could be stuck paying a higher rate for the next 30 years.

When You Have a High Interest Rate

If you’re paying a lot of interest on your home loan, you may be wondering when you can refinance. Refinancing can help you get a lower interest rate and save money. In this article, we’ll discuss when you can refinance a home loan.

When You Have a Good Payment History

If you have a good payment history, you may be able to refinance your home loan and get a lower interest rate. A good payment history shows that you’re reliable and are more likely to make your payments on time.

When You Have a Good Credit Score

If you have a good credit score, you may be able to refinance your home loan and get a lower interest rate. A good credit score is generally considered to be a score of 700 or higher on a scale of 300 to 850. The higher your credit score, the more likely you are to be approved for a loan and the lower your interest rate will be.

When You Have a Balloon Payment

When You Have a Good Payment History

If you have been making your mortgage payments on time and as agreed, you may be able to refinance your mortgage loan before your balloon payment is due. Lenders will typically require that you have a good payment history before they will approve you for a refinance.

When You Have a Good Credit Score

You might be able to refinance your mortgage to a shorter-term loan and save money on interest over the life of the loan. Or, you might be able to get a lower interest rate, which could reduce your monthly payments.

If you have a good credit score — typically 720 or higher — you might qualify for a “streamline” refinance. With this type of refinance, you can reduce your interest rate with little documentation. You might also be able to reduce your monthly payments if you extend the term of your loan from 30 years to 40 years.

When You Have a Government-Backed Loan

If you have a government-backed loan, you may be able to refinance through the government’s Home Affordable Refinance Program (HARP). This program is designed to help homeowners with government-backed loans refinance to a lower interest rate. There are a few things to keep in mind before you refinance, such as how long you have been in your home, your current loan balance, and the value of your home.

When You Have a Good Payment History

If you have a solid payment history and want to refinance to a lower interest rate or get cash out, most conventional lenders will allow you to do so with little fanfare. You’ll need at least 20% equity in your home, good credit, and proof of income and employment.

When You Have a Good Credit Score

If you have a good credit score, you can usually refinance your mortgage without problems. A credit score above 670 is considered good, and a score above 740 is considered excellent. If your credit score is below that, you can still get approved for a refinance loan, but you might have to pay private mortgage insurance (PMI).

Lenders typically require PMI when homebuyers make a down payment that’s less than 20% of the home’s purchase price. So if you bought your home for $250,000 and made a $50,000 down payment (20%), you would not have to pay PMI. But if your down payment was only 10%, or $25,000, you would have to pay PMI until you reach 20% equity in the home — which would be $50,000 equity.

Not all lenders offer FHA-backed loans for investment properties. But if you do find one that does, expect to pay higher interest rates and fees. Lenders view borrowers with lower credit scores as higher risks — which means they charge higher interest rates and fees to offset that risk.