How Long Before You Can Refinance?

In some instances, you may have to wait for a number of payment cycles before lenders will be interested in refinancing your mortgage, but more often you can refinance as often and as soon as you'd like. Whether you should refinance often and soon is another matter. At some point, it will cost you money, and it may lower your credit score.

A Refi Myth

If you read mortgage lending blogs, you'll occasionally be warned against refinancing your mortgage loan before it has seasoned. The advice often given is that you should wait some number of months -- six months is one estimate -- before attempting to take out another loan. The idea is that a new lender will want to see you build up some credit history with your current loan before offering you another one.

If you have had limited credit prior to the current mortgage loan -- and it is also your first -- lenders may want to see how you handle those payments for a few months before refinancing. However, that is more the exception than the rule. If you've been living in your house for awhile, you not only have your credit history with the current loan, you also have your credit history with the previous mortgage loan. The prospective lender also takes your entire credit history into account. If you have solid credit, most lenders will happily refinance your loan immediately after the previous refinance.

Reasons to Refinance

In some instances, refinancing is unambiguously the right move. If your current loan is a variable rate or hybrid loan, replacing it with a fixed rate loan reduces your interest rate risk.

One circumstance that affects some homeowners is the unwillingness of many banks to offer a construction loan that converts to a fixed rate. In this case, you may have a loan that you've only had for a few months since completing construction, but one that has converted to a variable rate. It may pay to refinance this loan as soon as possible, replacing it with a fixed rate loan. Historically, U.S. fixed rate mortgages have been volatile, and on occasion have risen to more than 18 percent.

Reasons Not to Refinance

Nevertheless, credible financial sources, such as Bankrate, warn against frequent refinancing.

One reason is that every refinance comes with closing costs, usually in the low four figure range and often ranging between 2 to 4 percent of the total loan value. If you refinance often, and particularly if you move within a few years of the last refinance, you may have saved nothing. Your resulting monthly payment may be lower, but your closing costs may have substantially increased your debt in the process.

Another reason for not attempting to refinance is that your figures may no longer look good to your lender. Your income may have dropped, or a household member lost his job. In some instances, falling home prices where your house is located may mean the house no longer provides sufficient equity for a new loan.

But in many instances, the best reason for not refinancing is that if you go to the trouble unpacking the numbers -- not the sales pitch the mortgage lender or broker may give you -- you'll discover that the savings aren't sufficient to offset the closing costs. John Wasik, writing for Reuters, warns that unless your credit score is above 700, you have steady income and the refi doesn't involve penalties and charges, you may be better off with the loan you have now.

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