Since no federal laws restrict the frequency of refinancing, one possible answer to “How soon can I refinance?” is “While the ink is still drying on your last contract.”
That is not a practical answer, however, and the true answer to how soon you can refinance a mortgage probably depends on the terms of your existing mortgage. Lenders look out for their own best interests, so it is likely that your current mortgage has some restrictions on how soon you can refinance. Some institutions set this date at six months, but a one-year term is more common. Failure to wait the full term will probably result in incurring high prepayment penalties.
How often can you refinance your mortgage?
Again, this is a situation where the technical answer, “Indefinitely, even perpetually,” varies considerably from the practical answer. Many times one of the trade-offs for getting a lower rate is that growing your equity in your home stalls out for a few months, or possibly drops. In other words, your finance company may ‘own’ a larger percentage of your home’s value.
The true answer to how often it is wise to refinance your home will depend on how much of a rate drop you will be receiving, the rule of thumb is that it should be at least 2%; on how long you plan to live in the home, less than 18 months may not be worth it; and on other factors, such as switching from adjustable to fixed rates or adding home improvements.
When is it too soon to refinance?
No set number of months or days can answer the ‘too soon’ question. Each situation is unique, and depends on a blend of economic factors and personal goals. Do you want to have your mortgage paid off in full, or do you think of having a mortgage as a rental payment that may offer a cash benefit when you move? Have interest rates dropped appreciably since you signed your current loan, and do you think interest rates will either rise or drop significantly in the future? Is your income stable, and do you like your neighborhood? Do you anticipate life changes in the next couple years that will entail moving?
It is never too soon to make responsible financial decisions. If you need help, find a neutral third party and do the math together.