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
January 22, 2025Consider this scenario: you've been in your home for five years or more and you've likely built up a significant amount of equity, and now you might be wondering how to put that equity to work for you. Whether you're dreaming of a major renovation, need to consolidate debt, or want to help a child with college tuition, you have options. Two choices are an FHA cash-out refinance and a home equity line of credit (HELOC).
January 20, 2025The FHA Streamline Refinance offers a refinance option for those who don't want to cash in on their property's equity but instead want a lower payment or interest rate or who need to get out of an adjustable-rate mortgage. This streamlined program, designed specifically for those already in an FHA-insured mortgage, simplifies the refinancing process with fewer requirements and faster approval times depending on the transaction.
January 16, 2025Want to buy a home and thinking about getting an FHA loan? FHA loans are a great way to make homeownership happen, especially if you're a first-time buyer or don't have perfect credit. But you might wonder, "Can I get more than one FHA loan?"
The short answer is, it's tricky. The FHA itself doesn't say no automatically to having more than one loan. But there's a caveat. FHA loans are about helping you buy a place to live in – your main home base. Because of this, and a few other things, getting multiple FHA loans isn't easy.
January 15, 2025Buying a condo with an FHA loan is an option some don’t consider initially, but it’s worth adding to your list of potential property types. FHA loans for condo units traditionally require condo projects to be on or added to the FHA-approved list. Still, changes in policy over the years allow borrowers to apply for FHA loans on condo units in projects not on the list on a case-by-case basis.
December 30, 2024When applying for an FHA loan, lenders will consider more than just your credit scores and history. They also look at other factors affecting your risk profile and the interest rate they offer you.
One factor is occupancy type. For FHA loans, this is straightforward because these loans require owner occupancy. Investment properties aren't eligible. While conventional loans may have different rates for primary residences, second homes, and investment properties, this isn't a concern with FHA loans.
