When Should You Refinance – Or Should You Refinance At All?
Refinancing can be an excellent way to save money on monthly payments.
That being said, not everybody should refinance – at least not yet.
Figuring if and when you should refinance is difficult. There are a ton of factors at play, and you can always end up wishing you had waited longer or refinanced earlier. There’s also the very real possibility that you regret refinancing in general.
So, when should you refinance, and how do you find out if you should refinance at all? Because every situation is different, the best thing to do is analyze the pros and cons, as well as the different options available.
What are the benefits of refinancing?
For most people looking to refinance, the biggest benefit would be saving money on monthly payments.
There are a few ways that you can save through a refinance. First, you can get a lower mortgage rate, and that can lead to lower payments on your mortgage. Second, if you are currently pay MIP or PMI, you could get it cancelled by refinancing with a VA refinance.
Because VA loans don’t have any type of monthly premium for insurance, refinancing from a different mortgage type – such as FHA or conventional – to a VA refinance often makes sense. This isn’t available with every VA refinance, though.
What are the drawbacks of refinancing?
The biggest drawback to refinancing is that there are additional closing costs. Depending on how much you’re saving on monthly payments, this can balance out in the long run. However, some people find that the closing cost of getting a refinance is a payment they’d like to avoid.
How soon can you refinance a VA loan?
There aren’t many rules about how long you have to wait to refinance a mortgage. In some cases, veterans have refinance their mortgage just a few months after buying their home.
While you can refinance after a short period of time, there are usually more drawbacks than benefits. For one, mortgage rates hardly change month over month, so the savings could be small. Also, that would mean paying closing costs multiple times in less than a year.
But if a homeowner finds a way to increase their credit quickly, then a newer, lower mortgage payments could be beneficial.
Do you get a lower mortgage rate with a VA refinance?
This question depends on the type of refinance you get. For the IRRRL, or interest rate reduction refinancing loan, a requirement is that your new mortgage rate is lower than your previous rate.
Not all refinances require a lower mortgage rate though, and some homeowners find that there are still benefits to refinancing.
What types of refinance options are there?
There are tons of refinance options available, but anyone who is VA eligible will probably want to stick to one of the two VA products: the IRRRL and VA cash-out refinance.
The IRRRL will require a lower mortgage rate, and that means lower monthly payments for the remainder of the loan. But you can only get an IRRRL refinance if you currently have a VA loan product.
The VA cash-out refinance doesn’t require a lower mortgage rate, and you can take out cash once the loan closes. The only limit to the amount of cash you can take out is determined by your current equity in your home.
Another benefit of the VA cash-out refinance is that you can refinance any type of mortgage, including FHA and conventional. This is particularly helpful when you don’t have enough equity to refinance with your current mortgage type.
Should I refinance?
Whether you refinance or not is a big question to ask, and unfortunately, there’s no universal answer.
The best way to determine whether you should refinance or not is to consider your financial goals, both short and long term. In the short term, you could end up having to pay more with an IRRRL, but it would mean lower monthly payments for the remainder of the mortgage. At the same time, a cash-out refinance would mean more money in the short-term, but it also could extend the length and cost of your mortgage.
There’s also the option of waiting to refinance. Maybe you’re expecting some money to come in sometime in the next year, or you’ve been working to increase your credit score. Both of these could play a role in determining whether you should refinance or not.
Also, current refinance rates will play a big role in determining how much you would pay each month if you were to refinance.
Deciding which option – if either – is best for your situation is something that you need to decide.