How Soon Can I Refinance After Buying a Home?

2 story brown home with 2 car garage

Your house isn’t just a home, but an investment in your future. After buying, staying on top of your refinancing options – and what they mean – can help secure money for renovations, education, family trips, or retirement. Don’t let a less than ideal mortgage drag you down. Whether you’ve struggled to secure the perfect mortgage the first time around, your financial situation has changed, or you’ve caught wind of lower rates, refinancing after buying a home can free you from some of your financial burdens and reduce your monthly payments.

In Tennessee, homeowners can refinance their mortgage right after signing the paperwork for it, but that doesn’t guarantee a result of significant savings. Instead, consider the factors below to help determine how soon you should refinance after buying a home.

Time Remaining on Your Current Mortgage

Homeowners should consider two different concerns here:

  • How much of their premium they’ve already paid
  • How long they’re willing to remain in debt

First, bear in mind that most lenders ask you to pay far more towards your interest charges than your premium in the first years of your loan, in order to achieve consistent payments. Obviously, money paid towards interest offers no benefits when looking to refinance, essentially adding up to wasted money. Early refinancing after buying a home, then, makes more sense in this case.

However, you should also bear in mind the length of your mortgage term, as 30 year terms remain traditional. Lenders offer other periods, but shorter terms will come with higher payments, sometimes negating any cost reduction that comes with refinancing. If you’re refinancing a 30-year mortgage after 5 years of payments and take a new 30-year mortgage, then you’ve ultimately added 5 years to your time in debt. While some might be happy to trade that for lower monthly payments, others may wish to be free from debt earlier, making late refinancing the less appealing option.

Closing Costs and Penalties

Mortgages also often come with two pitfalls that make refinancing after buying a home less appealing:

  • Closing costs
  • Prepayment penalty clauses

Unfortunately, paying closing costs after refinancing is typically unavoidable. These costs, however high they might be, should simply be considered a hit to the savings you hope to achieve. Whether or not you should refinance at a given time depends on whether you will break even after paying those closing costs. In most cases, refinancing will still be worth paying these fees.

More importantly, some mortgages come with prepayment penalty clauses, and these can be quite punishing for homeowners looking to quickly refinance after buying a home. These fees ask homeowners to pay a certain percent of their premium as a penalty for paying the full loan too early, often within a year, in order to discourage early refinancing. In order to save money through refinancing, you should at least wait until these penalties have expired, if not avoid signing mortgages with prepayment penalty clauses altogether.

Once you decide to refinance after buying a home, be sure to diligently shop lenders and compare offers. We also recommend that you check with your current lender first, as many will be eager to offer you a better deal in order to keep your business. Check with all your local banks, credit unions, and mortgage brokers before you sign a new mortgage, lock your rate when it hits a good low, and enjoy those lower monthly payments!

If you’re thinking of buying or searching for a new home rather than refinancing, check out our powerful and convenient home search tool. We’ve had our fingers on the pulse of Knoxville’s real estate market for years, and we’ll be happy to help you secure the home of your dreams!

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