You can refinance most conventional mortgages after 30 days, but some government-backed loans require waiting up to 24 months.
Recent ups and downs in mortgage interest rates have home borrowers considering refinancingâreplacing their existing home loan with a new one to get better loan terms, even if their existing loan is only a few months old. How soon is too soon to refinance? That may depend on your current loan contract and the type of refinance you want to pursue. Read on for more details.
Renegotiating a mortgage can help you secure more favorable terms, but there are rules on how soon you can redo your home loan. This article explains mortgage renegotiation and when you can and can’t rework your agreement.
What Is Mortgage Renegotiation?
Mortgage renegotiation involves changing the terms of your existing home loan by working with your lender. Reasons to renegotiate include:
- Lowering your interest rate
- Reducing your monthly payments
- Switching from a variable to a fixed rate (or vice versa)
- Lengthening or shortening your amortization period
- Removing private mortgage insurance (PMI)
- Taking out home equity on a cash-out refinance
You don’t necessarily need a major life event or change in financial circumstances to renegotiate. Opportunities like lower market rates or improved credit could justify reworking your mortgage.
Renegotiating resembles refinancing but doesn’t always require an official loan application or underwriting process. You may simply submit a request to your lender.
How Soon Can You Renegotiate a Mortgage?
In general, renegotiating an existing mortgage is easier than refinancing with a new lender. However, most mortgages do have rules regarding when and how often you can redo your home loan terms.
Conventional Loans
For conventional mortgages, renegotiation is generally straightforward. You can typically rework your interest rate, payment, or switch from fixed to variable (or vice versa) anytime.
The timeline is longer for a cash-out renegotiation, which requires converting equity into cash. Most conventional loans make you wait at least six months after closing before taking cash out on a renegotiation.
FHA Loans
With an FHA mortgage you’ll usually need to make six months of on-time payments before renegotiating rate or term changes. For a cash-out renegotiation you must wait 12 months after closing.
VA Loans
VA loans allow renegotiation after six on-time payments or 210 days, whichever happens later. This applies to rate/term changes and cash-out renegotiations.
USDA Loans
For USDA-backed mortgages, you’ll typically need to make 12 months of payments as agreed before any type of renegotiation.
Jumbo Loans
Jumbo mortgages above the conventional limit can usually be renegotiated at any time. But if your finances have changed since you first qualified, you may struggle to redo a jumbo loan.
When Does Early Mortgage Renegotiation Make Sense?
While most loans make you wait before renegotiating, it can pay off under certain circumstances—even shortly after buying a home.
You Can Get a Lower Rate
If mortgage rates drop after you close on your home loan, renegotiating could potentially secure you a lower rate and reduce your long-term costs. Just be sure to weigh rate savings against any fees to redo your mortgage.
Your Credit Score Has Improved
A significant credit score increase could also justify early renegotiation. A higher score means lower rates and monthly payments. Even small score bumps can add up to thousands in mortgage interest savings.
You Want to Remove PMI
If your home value has risen enough that you now have 20% equity, renegotiating can sometimes get rid of expensive private mortgage insurance (PMI).
Your Financial Situation Has Changed
Major life events like marriage, divorce, or job loss can impact finances enough to warrant renegotiating your mortgage. For example, removing an ex-spouse from the loan or lowering payments after a layoff.
You Need Access to Equity
Through a cash-out renegotiation, you can tap equity for things like home renovations, repairs, tuitions, or medical bills. Just know that you’ll pay interest on the money taken out.
Tips for Renegotiating Your Mortgage
Here are a few tips to smooth the mortgage renegotiation process:
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Check your loan documents – Make sure you know your lender’s renegotiation rules, as well as any prepayment penalties.
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Compare mortgage rates – Even if you don’t refinance, researching rates can provide leverage when renegotiating with your current lender.
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Mind the closing costs – Renegotiating often comes with appraisal, application, and other fees. Make sure cost savings exceed fees.
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Watch the credit impacts – Too many mortgage applications in a short timeframe can negatively affect your credit score.
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Consider alternatives – You may have options like a HELOC or home equity loan if you need access to your equity.
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Ask about discounts – Some lenders offer rate discounts for existing customers or if you have other accounts with them.
Frequently Asked Questions
How often can you renegotiate a mortgage?
Most mortgages limit you to one renegotiation every 12 months. Conventional loans are sometimes more flexible. Check your loan documents or ask your lender to understand the rules for your specific mortgage.
Does mortgage renegotiation hurt your credit?
Renegotiating won’t necessarily require a hard credit pull and ding your credit like a refinance would. But if you formally apply for a loan modification, your lender will likely check your credit report. Too many applications in a short period can damage your credit score.
Is renegotiating better than refinancing?
In some cases, yes. Renegotiating lets you tweak your existing mortgage, while refinancing means an entirely new loan. Refinancing has stricter qualification requirements and will incur closing costs. Renegotiating may provide more flexibility if you don’t want to completely redo your home loan.
Can you remove PMI through renegotiation?
If your home value has increased enough that you now have 20% equity, your lender may agree to remove PMI through a renegotiation. This can save you hundreds per year without having to refinance.
Key Takeaways
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Mortgage renegotiation involves changing your existing home loan terms by working with your current lender.
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Most mortgages limit how soon you can renegotiate after closing on the loan. Wait periods range from six months to a year.
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Early renegotiation can make sense if your financial situation has changed or you can get a better rate. But closing costs may outweigh any savings.
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Tread carefully when renegotiating soon after buying a home, as frequent mortgage applications can damage your credit.
Renegotiating a mortgage too soon after closing can be risky. But under the right circumstances, it can help you secure more favorable rates and terms. Just make sure to evaluate your options thoroughly before starting the process.
Add or Remove a Co-Borrower
If you got your mortgage based on your own credit and income, and wish to reapply with a co-borrower (such as spouse), refinancing is the way to do it. Doing this could mean better borrowing terms, since both of your incomes will be considered with the application.
On the other hand, if you obtained your current mortgage with a co-borrower and wish to have the other party removed from the loan (in the case of a divorce, for example), refinancing under your own name or with a different co-borrower can accomplish that.
Pros and Cons of Refinancing
Before refinancing your mortgage, it pays to consider the potential benefits and drawbacks of doing so.
- Lower interest rate: Probably the single greatest potential benefit of refinancing a mortgage is to reduce the interest rate on the loan. If interest rates have decreased, your credit has improved or a combination of both, refinancing could help you drastically reduce how much interest youll pay.
- Eliminate variable interest rate: Replacing an ARM with a fixed-rate loan is likely to save you money over the life of the loan while giving you predictability in your budgeting.
- Lower monthly payments: If your payments are too much of a stretch, refinancing to reduce your monthly obligation can make your finances more manageable, although youll likely end up paying more for your house in the long run.
- Closing costs: A refinance is a new loan, and the issuer (even if its the same lender who issued your existing mortgage) typically charges closing costs of 2% to 6% of the loan amount. This origination fee and other closing costs may be negotiable, and are traditionally due in cash when you close on the new loan. “No closing cost” refinance offers typically add these fees to the new loan, so youll pay them off, with interest, over the life of the loan, potentially adding thousands of dollars to the overall cost of the mortgage.
- Potential prepayment penalty: Some mortgage contracts indicate that you must make a balloon payment of several thousand dollars if you repay in full less than three to five years after taking it out (or even if you pay in full any time before the end of your repayment schedule). This prepayment penalty is typically collected even if you refinance with the same lender that issued the original loan. You may be able to add the penalty amount to your new loan, but doing so will add significantly to the overall cost of the refinance.
- Delayed equity accumulation: Mortgage installments consist of payments toward principal and interest, and only the principal portion adds to your home equityâthe portion of the home you own outright. Mortgage payments are also amortized, which means initial payments mostly consist of interest charges, with a relatively small share of principal. In each successive payment, the share of principal increases and the interest share decreases, so you accumulate a greater amount of home equity with each payment. By resetting the amortization clock, a refinance slows down the rate at which you amass home equity.