Very few, if any home mortgage agreements disallow refinancing. They can, however, require prepayment penalties for early payoff. The right amount of time before you refinance depends on what type of loan you currently have, what type of new loan you want and your personal situation. Often, just because you can refinance your mortgage doesn't mean you should.
Current Mortgage
Read your current mortgage note. When you closed your last mortgage, your title company or attorney should have given you a copy of everything you signed. Your mortgage note will be included in these documents. Your note will disclose any prepayment penalties and their requirements. Usually these penalties are for the first two or three years, and are for a percentage of your loan's balance. If you cannot find your note, call your mortgage servicer and ask if your loan has a prepayment penalty and if so, what it is.
New Mortgage
Decide why you want a new mortgage. There are many valid reasons for a new mortgage: You may be able to save hundreds of dollars each month; you may want to access some of your home's equity for other purposes; or you may simply want to shorten or lengthen your mortgage's term. All of these are common reasons to refinance. Comparing your goals for the new mortgage with your current loan helps you determine if you are making the right decision for your situation.
Cost Considerations
Your current mortgage required closing costs. They were paid in one of three ways: You paid all of them upfront and received a lower than average interest rate; your mortgage lender paid all of them for you and you pay a higher than average interest rate; or your lender shared the expense with you and you have an average interest rate. No matter the option chosen, there was a cost to close your last loan. If you have not had your loan for very long, you should consider any new costs along with the costs of the last loan when determining if the new loan is worth the cost.
Refinancing Options
You have options other than refinancing your first mortgage loan. Second mortgages are usually less expensive to obtain than a new first mortgage, as most fees are based on the loan amount. A $25,000 second mortgage usually costs less than a new $250,000 first mortgage. The interest rate is usually higher but the fees are often less. If you only want to lower your interest rate or change your loan term, contact your current mortgage servicer. They may have programs available only for current mortgage clients that might be faster and less expensive than finding a new lender.
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