Home Refinancing

Home refinancing is an option that is explored and exercised by many out there as it usually comes with several benefits of its own. Home refinancing generally allows you to garner a better loan deal for your current mortgage, especially if you are struggling to cope with the monthly repayments. If fortunate, you might also be able to stretch your home loan deal for a longer duration, and thus lower your monthly payments even further. Nevertheless, how quickly can you refinance your home after you purchase it? Qualifying for a home refinance deal is pretty straight forward, as you usually qualify immediately after your purchasing papers are signed and documented. However, it is a wise decision to refinance immediately after you purchase a home?

Refinancing home mortgage is probably a wise decision when struggling with monthly loan repayment amounts. Nevertheless you need to be careful not to incur additional costs as well when you opt for this refinancing option. You need to be clear of whether you have a “seasoning period” clause in your agreement that you sign with your lender. If you do, then you would not be able to refinance your home until your “seasoning period” is over, a period that is usually one or two years. Lenders instill this clause in the agreement to ensure that they do not lose money by agreeing a deal with you, and have the amount paid off in-full within the first couple of years.

The “seasoning period” clause can be equated to a Prepayment Penalty (PPP) in terms of intention of its addition in the loan agreement. While some lenders legally block you from refinancing your home within the first few years of signing the agreement, others do not. Instead they add a PPP clause in the agreement, meaning that you would need to agree to a prepayment penalty if you intend to refinance your home within the initial years of your home purchase. In other words, you could end up losing several thousand dollars to your current lender if you refinance within the agreed PPP period. The PPP amount could go up to 5% of your initial loan amount, thus you would need to think hard before you refinance within the PPP period.

And you would also need to consider whether you have enough equity to work with before you opt for a refinance package. New homeowners would usually be low in terms of equity, as you might have invested a decent amount of cash when you purchased your home. Unless you purchased a home with minimum down payment, new homeowners would usually struggle to have much equity in hand when choosing to refinance. And generally, you do actually need a decent amount for the closing costs and legal fees of your refinancing solution.

If you are not planning to live in your current home for more than five years, then immediate refinancing might not be worth the cash, or the effort. You would probably take the same amount of time to break even, thus you would be better off to put all the efforts elsewhere into something more beneficial. To calculate how many months it would take you to break even, simply divide the amount that you would save monthly after refinancing by the total amount that you spent for the refinancing activity.

Naturally, you should still be having many refinancing questions in your head. To answer these questions, the best way to go forward is to seek one of the many financial bodies and organizations out there that offer home refinancing services. These organizations would be able to analyze your current credit situation and provide you with a specific home refinance package to suit your needs and requirements. It is advisable to seek at least three to five different companies that offer these services and compare their offers before you come to a decision. And remember to always countercheck with the Better Business Bureau to ensure that you are dealing with a legitimate financial firm.