How soon can you refinance a mortgage?

How soon can you refinance a mortgage?

It is possible to refinance your home loan at any time after settlement. There’s typically no legal requirement for you to wait for a set number of days before refinancing. However, whether it makes sense to refinance soon after you take out a loan can depend on why you want to refinance and how much it will cost you.

Refinancing a home loan costs money, and these costs can add up and eat into your potential savings. Making too many loan applications in a short span can also affect your credit score.
Because of this, many borrowers wait at least 6 to 12 months before refinancing, especially if they’re still building equity or recovering from initial loan setup costs.

Before making the switch, it’s worth doing the maths—ideally, the savings from a better rate or loan structure should outweigh the costs of refinancing. Speaking to a mortgage broker or using a refinance calculator can help you decide whether it’s the right time.

What to consider when refinancing

There are many reasons that you may want to refinance your home loan but the most common reason is often to get a better rate and save money. However, if you’re refinancing too often or too soon after you take out a mortgage, you may not be saving much (or any) money.

Some of the things you may want to consider include:

• Your potential savings

• Costs of refinancing

• The impact on your credit score

• Whether you have enough home equity to refinance.

How much can I save by refinancing my home loan?

Refinancing your home loan can offer significant savings, especially if you’re switching from a high-interest loan to one with a lower rate. The amount you save depends on several factors, including your current interest rate, the size of your loan, remaining loan term, and any fees involved in switching lenders.

Let’s say you have a $500,000 home loan with a 6.50% interest rate and 25 years remaining. Your monthly repayments would be around $3,376. If you refinance to a 5.90% interest rate, your repayments could drop to approximately $3,191—saving you over $185 per month, or more than $55,000 in interest over the life of the loan.

You can use an online calculator to calculate your potential savings at various interest rates. However, keep in mind that refinancing also involves fees and costs, which you should weigh against your potential savings.

What are the costs of refinancing?

Exit fees on variable rate home loans have been banned for well over a decade. But you could still face plenty of other costs if you choose to refinance. The main costs are outlined below:

Costs of the old loan:

• A discharge settlement fee may apply to cover the admin costs of winding up your current home loan.

• Break fees can apply if you refinance a fixed rate loan before the fixed rate term expires. How much you may be asked to pay can depend on how market interest rates have moved since you first fixed, but break fees are definitely something to check with your lender.

Costs of the new loan:

• Application fees or a loan establishment fee may be charged by the new lender.

• A property valuation fee may apply if your new lender requires a formal valuation of your property.

• A settlement/legal fee may be charged by the lender.

• A mortgage registration fee may be levied by your state or territory government to register your new home loan.

Many of these fees and charges will depend on both your current lender, and who you select as your new lender. So it’s hard to put a hard and fast figure on how much refinancing will cost.

That said, your new lender or a mortgage broker should be able to provide a clear idea of the costs of refinancing—and how much you can save by switching, letting you weigh up the financial benefits of refinancing.

Will refinancing impact my credit score?

Each time you formally apply for a credit product—including a mortgage—it’s typically recorded on your credit report. This can impact your credit score, especially if you submit multiple applications with different lenders in a short period.

It’s important to shop around to find the right loan for your needs, and limit the number of loan applications you make in order to keep your credit score in good shape.

Compare Refinance Home Loans

Do you have sufficient home equity to refinance?

One aspect of refinancing that can be easy to overlook is the need to have sufficient home equity to avoid paying lenders mortgage insurance (LMI).

LMI typically applies if your loan is worth more than 80% of your home’s value, meaning you have less than 20% equity in your home. If this is the case, the new lender may ask you to pay LMI. This applies even if you already paid an LMI premium when you first took out your home loan.

As LMI can run into thousands of dollars, it has the potential to wipe out your savings from refinancing.

When can you refinance your home loan?

As previously discussed, home owners can potentially refinance their home loan at any time. But for refinancing to be worthwhile, the savings of moving to a new loan should outweigh the costs involved.

The main point is that your home loan should ideally not be a ‘set and forget’ financial product. While refinancing continuously may not be helpful, it’s worth reviewing your mortgage at least annually to see if your loan is still offering a competitive interest rate plus the features and flexibility you need. If you’re unsure about whether refinancing is the right move for you, ask a mortgage broker to crunch the numbers for you.

In today’s competitive home loan market, a number of lenders offer cashback deals and other incentives to refinancers. These perks can help to lower the cost of refinancing, though it is a good idea to be sure your new loan stacks up for long-term savings on interest rather than making a decision to refinance based on a short-term sweetener.

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