How often can you refinance your home in Washington State? Whether you’ve owned your home for years or just recently purchased, everyone wants to know how they can save money. Read this article for a brief explanation of what refinancing is, Why you may want to consider it and just how often you should.
How often can you refinance your home in Washington State? The quick answer is as often as it makes financial sense. However, sometimes what makes financial sense is a little harder to understand. In addition to that, lenders have specific eligibility requirements that you must meet in order to qualify for a refi.
Whenever you decide to refinance, your decision should involve careful consideration. In this article, we will take a look at what a refi is, why you might have a good reason to refi, and just how often you can or should refi your home loan in Washington State, or anywhere.
What is Refinancing?
Mortgage Refinancing is the process of replacing your existing home mortgage with a different mortgage product. To put it simpler, it’s kind of like changing your cell phone plan, only there’s a lot more money and a longer time commitment involved. Just like you did during the home purchase process, once you decide what kind of mortgage product you are looking for, you compare offers from several lenders and find the deal that complements your financial situation.
With home values on the rise in Seattle, Bellevue, and the surrounding areas, there are several reasons why Washington State homeowners may want to refinance their mortgage. From changing the term to securing a better interest rate, refinancing comes down to money and how you can keep more of it in your pocket over the life of your home loan. But it’s easy to get confused, let’s start by taking a closer look at 3 good reasons to consider a refi in Washington State.
#1. Refinance For A Better Interest Rate
The most common reason homeowners refinance their current mortgage is to secure a better interest rate. It makes sense. A homeowner can easily save thousands of dollars over the term of the loan simply by shopping for a better interest rate. This is especially applicable when the term of the loan is shortened. Generally, shorter-term loans offer lower interest rates. Shortening the term of the loan isn’t the only way to get a better interest rate. But let’s take a look at what even a small change in the interest rate can mean; let’s say you have a 30-year mortgage with $400,000 owed in principal at 4.5% and you have the opportunity to refi your mortgage with the same term but a lower interest rate of 4%. Taking the lower rate will save you more than $117 in interest per month which may not sound like a big difference but when the savings is applied correctly it can have a huge long term impact on your finances. For example, if you apply that $117 towards your principal every month you would end up spending over $70,000 less in payments over the life of the loan. Conversely if you invested that savings in something that earned a return of say 5% over 30 years you would have saved over $90,000.
Given the availability of no cost refinances in which the lender provides credit at closing to cover all lender and third-party fees in exchange for a slightly higher rate, you don’t need to drop your rate much to receive a financial benefit.
#2. Eliminate PMI (Private Mortgage Insurance)
FHA home loans are an amazing way for homebuyers with little savings or less than perfect credit to buy a home. They also offer the ability to secure a home loan with a smaller down payment. For more information on the PMI, downpayment connection, check out this great article. Maybe like many others, you purchased your house with an FHA mortgage that requires maintaining private mortgage insurance until 20% of the home’s equity has been achieved. This means that once your home’s value exceeds the value of the loan by 20% you may be eligible to refi and avoid PMI premiums.
#3. Cash-Out Refinance to Consolidate High-Interest Debt or Make Home Improvements
Perhaps you carry a substantial balance of high-interest credit debt. A cash-out refinance can be a great way to consolidate all of that debt under one low-interest loan. Even if you are forced to take a slightly higher interest rate on your home mortgage, debt consolidation can free up cash quickly and save you money over the life of the loan.
Maybe you are considering some home improvements. Be careful that your improvement plans don’t exceed the value of your home. It’s easy to get carried away, but take caution and make improvements that add real value.
NOTE: One consideration here is that the IRS says unless the “cash-out” amount is used to “buy, build or substantially improve” your home, you can’t deduct mortgage interest paid on the amount that exceeds the current loan balance. For example, if you secured a refi for $200,000 on your home valued at $180,000 you wouldn’t be able to deduct the mortgage interest paid on $20,000.
However, it still may make very good financial sense to consolidate your debt, improving immediate cash flow and saving you from burdensome high-interest credit payments. An alternate option to a cash-out refi may be a home equity loan. For more information, check out this helpful article.
More Refinancing Considerations
Still, there are more things to consider when deciding how often and whether or not to refi. Like we mentioned in the beginning, refinancing is all about the numbers. It’s also about timing. Most lenders require what is known as a “seasoning period”. This is a period of time the lender requires to establish loan history (generally at least 6 months, and more often closer to a year). During that time period, it may be difficult to find another lender willing to offer refinancing terms.
Another consideration is any prepayment penalty that may be attached to your current mortgage terms. Prepayment penalties exist to protect lenders against losing interest income should the borrower choose to refinance in a shorter time period. These days prepayment penalties are rare unless your existing loan was a non-conventional or hard money loan. This is definitely an important thing to remember if you think you may be refinancing within the first few years of homeownership. For a great checklist of items, you will need to refi click here.
There is no real limit to how often you can refinance your home in Washington State. Whether you live in Kirkland or Bellevue there are many reasons you may want to consider refinancing your home mortgage. Refinancing is a good way to stimulate positive cash flow in the short term and save you money.
With every major financing decision, there are positives and negatives that must be evaluated on a personal level to make sure refinancing your home mortgage makes financial sense for you. In the end, the responsibility to run the numbers and weigh the outcome comes down to the borrower, so don’t be afraid to dig in.
Whip out that calculator, get to know the real value of your home and understand your refinancing options before you make a decision to commit. If you are having a hard time understanding the numbers, reach out to your mortgage professional and make sure they can explain them to you, If they can’t, then they may not be the best to work with.
Ready to Refinance?
Whether you are looking to refinance, buy, or just have questions about homeownership, be sure to consult with your trusted home mortgage professional at Sammamish Mortgage to discuss current options. Don’t wait, contact the experts at Sammamish Mortgage today with questions about refinancing or securing a mortgage.
Let the mortgage professionals at Sammamish Mortgage guide you. Family owned and operated since 1992, we know what you value. Let us help you understand the ins and outs of home refinancing and more. Sammamish Mortgage offers a variety of loan programs including FHA and VA mortgages.
Regardless of your situation, we can guide you through the process. Proudly serving Seattle, Bellevue, Kirkland and Washington State. We are also proudly licensed in Oregon, Idaho, California and Colorado. Please contact one of our friendly staff members today. We look forward to serving you.