3 Reasons Not to Wait to Refinance After Purchasing Your Home

Did you know that you can refinance your mortgage soon after buying your home? Most people think they need to wait anywhere from 6 months to a year, but Fannie Mae and Freddie Mac, the two government-sponsored enterprises, have no waiting period. So, if you just bought your home and took out a 7% interest rate, you could refinance that very month – we call that a "do-over mortgage."

Conventional wisdom suggests waiting to refinance your mortgage after purchasing a home. The thinking goes: you just paid a bunch of closing fees and endured the stress of buying a home, so why go through it all again? Here are 3 reasons why you might want to consider refinancing soon after buying:

Reason #1: You're Not Restarting the Clock by Much

Since you've just purchased your home, you haven't made many payments, so you're barely restarting the clock on amortization. For example, if you took out a 30-year fixed-rate mortgage to buy your home, made 2 payments, and are now refinancing to a new 30-year fixed rate, you're only restarting the clock by 2 months.

This is important because some mortgage salespeople might mislead homeowners into thinking that the refinance savings are calculated solely by the difference between the existing and new monthly payments. This is incorrect! Don't be fooled.

Part of the savings may come from the lower interest rate, but additional savings can also result from restarting the amortization period. However, if you've already paid 3 years of your mortgage and refinance to a new 30-year fixed rate, you'll end up paying more interest overall by restarting the clock for a longer term.

While some homeowners might prefer to restart the clock at 30 years, it's crucial to understand how much of the perceived savings comes from the lower interest rate and how much comes from re-amortization. Re-amortization itself isn't actual savings; it simply stretches out the loan term.

Additionally, you may be able to use the appraisal from your recent home purchase, which can help decrease your refinancing fees.

Reason #2: Yourgage

Most lenders offer standard fixed-term mortgage options: 30, 25, 20, 15, and 10 years. At LoanDesk, we offer the flexibility of "Yourgage," which allows you to choose any year term for your mortgage.

By selecting an odd-year term, you can stay on the same amortization schedule you started with or even accelerate your payoff! For example, let's say you've made 4 months of payments on a 30-year fixed-rate mortgage but want to take advantage of today's low rates through our DIY Refi®. With Yourgage, we can seamlessly transition you to a 29-year fixed-rate loan. This enables you to benefit from the lower interest rate, potentially reduce your monthly payment, and pay off your home faster – a true win-win!

Reason #3: Paying Points Might Make Sense Now

When you're focused on buying a home, the mortgage itself can take a backseat to finding the perfect place. Many people end up financing the purchase with their bank or a lender recommended by their realtor, without much time to explore all their options.

When you refinance, the mortgage becomes the primary focus. Now that you've settled into your new home, you're in a better position to evaluate the best mortgage options for your situation.

If you plan to stay in your home for the long haul, then paying points during a refinance might be a strategic move. Points are a one-time upfront cost that can significantly reduce your interest rate over the life of the loan. If you plan to stay in your home for a long time, the potential interest rate savings from paying points can outweigh the upfront cost.

Ready to explore your refinance options and see if you can save money? Connect with LoanDesk today!