Is Waiting to Refinance Your Residential Home a Good Idea?
April 23, 2025
Refinancing without carefully considering your current financial circumstances is never a good idea, but careful planning in the current financial environment is even more important.
One of the primary reasons to hold off on refinancing is when interest rates have risen or haven't decreased much since you obtained your original mortgage.
If current interest rates are worse than your home loan rate, refinancing would likely result in higher monthly payments and an increase in the total interest you pay over the life of the loan.
Consider keeping your current mortgage and waiting for a more favorable interest rate environment. Monitoring economic indicators and mortgage rate trends can help you identify opportunities for refinancing later.
The Cost of Refinancing
Another factor to consider is the cost of the refinancing transaction, especially funding fees and other expenses. Refinancing isn't free; it involves application fees, appraisal fees, title insurance, and closing costs.
If the potential savings from a lower interest rate or more favorable terms are not substantial enough to offset these upfront costs over a reasonable period, refinancing might not be worthwhile. A good rule of thumb is to calculate your "break-even point," which is how long it will take for your monthly savings to recoup the refinancing costs.
If this period is too long, especially if you don't plan to stay in your home for an extended time, waiting might be the smarter choice.
Borrower Needs
What are your financial needs and goals? If you are planning to move soon, refinancing might not be beneficial, as you may not stay in the home long enough to recoup the associated costs.
Taking on a new mortgage obligation might not be advisable if you face uncertainty with your employment or credit.
Another reason to wait is if your current mortgage has a very low interest rate. Even a slight decrease in market rates might not be enough to justify the move. Do you currently have a mortgage with an interest rate below 4%? The potential savings from refinancing to an even lower rate are minimal and could be outweighed by the refinancing fees.
FHA and Non-FHA Loans
Consider also the specifics of your current mortgage. Non-FHA borrowers may have a prepayment penalty on the existing loan, and the cost of refinancing could be higher in these cases. A prepayment penalty is a fee the lender charges if you pay off your mortgage early, including through refinancing.
Before considering refinancing, reviewing your loan documents for a conventional or non-FHA loan is crucial to determine if such a penalty exists and factor the expense into your refinancing calculations.
FHA Loan Articles
June 8, 2021While an FHA home loan is a good option for first-time homebuyers who don’t have enough money saved for a large down payment, it’s important to understand the ins and outs of the FHA guidelines, and what it takes to get approved as a borrower.
May 24, 2021With historically low interest rates, the mortgage industry has seen a sharp uptick in refinances. Taking advantage of the current market might be in your best interest and could lower your monthly payment significantly. Don’t forget that refinancing a mortgage comes with closing costs.
May 8, 2021With a new waiver in place, Dreamers have access to affordable FHA home loans designed for first-time homebuyers. There is no discrepancy in the FHA’s eligibility requirements when it comes to DACA status holders applying for an FHA-backed mortgage. They must meet all the same criteria.
April 30, 2021Buying a house is overwhelming to begin with. Make it a seller’s market, and buyers become even more nervous. Supply of real estate has been low for most of 2021, in part because of the Coronavirus pandemic and the historically low interest rates since 2019.
April 23, 2021No matter what kind of market you’re in, it is always best to get pre-approved before going to shop for houses. The last thing you want is to go look at homes, find the one you love, then have to wait on an approval and lose the dream home to another buyer.
