How Soon Can a Mortgage Be Refinanced?

There are many advantages to having your mortgage refinanced. Of course, the most important and obvious reason is the lower rate you’ll enjoy. When applied at the right time and opportunity, having a mortgage refinanced can save you thousands of dollars in the long run. However, since timing plays a crucial role in refinancing, it’s important that you understand the factors that can affect how successfully you can take advantage of it. So how soon can a mortgage be refinanced and should you?

The right time
Getting a mortgage is not for sissies. This type of loan, whether you’re taking it out to purchase a car or a house, is easily one of the biggest financial decisions you’ll ever make in your life.

If you’re taking out a home mortgage loan and are considering getting it refinanced later, you’ll be glad to know that you could probably do it at any time you want. But once you have a mortgage and interest rates begin behaving in a manner that is favorable to you, you shouldn’t automatically apply for refinancing.

First, the difference in the new interest rate and the current interest rate should be enough to actually give you some advantages. Second, most lenders will probably advise you to refinance only after your loan has matured for a minimum of 12 months or so.

However, it’s good to consider this only if interest rates have remained more or less the same. If, at any time after you have taken out a mortgage loan the market trend begins tipping to your advantage, you should consider refinancing your loan. Remember that interest rates are rather volatile and if you wait too long for them to dip further, you could miss out on a very good opportunity to get a good deal.

Consider the 2 percent rule.
Just because interest rates have fallen a tiny bit does not automatically justify your decision to refinance. Consider refinancing only if the new interest rate is at least 2% lower compared to the rate you’re currently paying. A 1% difference in interest is not sufficient reason to make the switch.

Remember that there are costs associated with a new loan. When you consider refinancing for your mortgage, remember that you will have to pay extra for closing fees. An interest rate as low as 1% will not cover the expense.

You have no late payments.
You could go ahead and refinance a mortgage provided you have paid your loan faithfully for the last 12 months. If you have never had a late payment during the last year, you could make the shift and have your mortgage refinanced.

You have already built up equity.
If you want to refinance a mortgage soon, try to examine if you have already built up equity. You should have a minimum of about 5% or 10% equity (depending on the lender) before you could consider refinancing as a feasible option.

So is refinancing an option for you?
Of course, you can always consider refinancing your mortgage at any time you feel most comfortable. The key is to consider the time factor, along with the type of opportunity being presented by the market. After all, refinancing is really getting a new loan. Just be prepared for the procedures and costs that you will have to go through all over again.

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To determine if your Commercial Mortgage Refinance will qualify, use the below to “prescreen” your situation. Understanding your potential loans strengths and weakness will save you time and ensure your best chance of a successful close.

Ownership

First, how long have you owned the subject property? Has it been less than 12 months? Unless the title is free-and-clear or there is sufficient equity, the lender will use the purchase price plus any documentable improvements you’ve put into the property – not the appraised value.

For example, if you put down 20% a year ago you will not be able to pull additional funds out and risk have the Loan to Value on a rate and term refinance coming out higher than 80%.

Have you been turned down by banks? Find out why? Was it just an internal issue or something they think is a problem with the deal? It is better to lay your cards out with a new potential lender in the beginning rather than later. 99% of the time underwriting will discover the issue even if you do not disclose it. You want to find a capital source that will close, not just work on it for 2 months, then decline.

History and market

What was the original purchase price and realistic estimated real estate value. When was an appraisal last completed and what was the appraised value? Try to not make the typical mistake of overvaluing the property – you will be the one that pays for that mistake. Calculate your net operating income and find out the current market cap rate in the subject properties area. Then do some basic calculations to get an idea of the income value.

Current mortgage terms

What are your current mortgage terms? Are you refinancing because you want a lower rate? Longer amortization? Want to pull cash out? Or do you have a ballooning loan? What are your long term goals?

• When are you planning to sell?

• What kind of amortization would you like?

• Do you have a lockout period or prepayment penalty that you have to deal with?

• Can the new loan afford the lockout and prepayment costs?

Property

What type of commercial property are you refinancing? Different building types of vastly different terms. 80% loan to value on a stated-income restaurant deal will not fund while an 80% loan top value on an office building will. The property’s zoning will dictate into which tier your property fits.

If your business occupies some of the space, what percentage? Is it more than 25%? Is it more than 50%? Many lenders will consider it an owner occupied deal if you’re in more than 25%. Virtually all lenders consider it owner occ if your business occupies more than 50% of the subject building which will give you better terms.

Lease terms

What kind of leases does the property currently have? Are they NNN? How much of the expenses do the tenants pay outside of the lease? Is there a significant amount of leases coming due in less than 2 years? Are there any credit grade tenants within the building?

It’s a very good idea to be prepared as your discussing your potential commercial mortgage refinance with lenders. Be ready to provide:

Operating and income history;

Rent rolls and annual rents;

Net operating income;

Vacancy information; and

Total square-footage, number of buildings and units.

Being upfront a thorough in the beginning will save you time and money in the end on your commercial mortgage refinance.

Commercial Mortgage Refinance Refinance Commercial Mortgage or Commercial real estateloans
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FHA Streamline Refinance will change its rules.  The changes will be implemented on November 17.  Because of the new rules, applying for this loan can become tougher.  

Until today, the process of getting FHA Streamline Refinance is very simple.  Basically, you will apply for refinancing and you can get guaranteed approval.  If you are holding an FHA mortgage and you are making payments on time, then there is no need for you to produce other requirements like proof of income, assets, credit score, and appraisals.  Unfortunately, the process is about to change and new rules will be implemented.  

Required Documentations Needed For the New Rules

Based on the new rules for FHA Streamline Refinance, you will be required to provide proof of verified income and assets.  You are also required to provide your credit scores.  Appraisals may not be necessary in some cases.  However, if you will roll the closing costs into the new loan, then you need to have an appraisal.  You are also required now to pay for points separately if you want to trim your interest rates.  

Although there are new sets of rules for FHA Streamline Refinance, obtaining this type of loan will remain easy.  The key requirements are still the same.  You need to have an FHA mortgage and you must show that you are a good payer.  

If you are holding the mortgage for less than 12 months, then you must not have a single late payment.  If your mortgage is more than one year, you could have at least one late payment in the past 12 months and still qualify for the loan.  The new rule is that you can not apply for refinancing if you’ve had the loan for less than six months.  

A most significant change is the loan-to-value limit.  In the past, you could go over 100 percent loan-to-value limits in order to cover the closing costs.  Under the new rules, the loan-to-value limit is set at 97.5 percent.  This will surely dash the hopes of ‘underwater’ homeowners who like to get lower rates through refinancing.  

Viable Option for ‘Underwater’ Homeowners

You can easily refinance based on the original appraisal of your home if you opt not to roll the closing costs on the new loan.  This is a good option for ‘underwater’ homeowners.  Even if the value of your home has fallen greatly, you can still refinance the remaining balance of the mortgage with lower interest rate.  The catch is you should shoulder all the closing costs.  

Closing cost can be significant.  It could reach up to two percent of the loan balance or greater.  However, if you get at least a percentage point lower interest rate, then you can recoup your closing expenses pretty quickly.  There are still other new rules that will be attached to FHA Streamline Refinance that you should carefully study.  

You are probably aware that applying for FHA Streamline Refinance is very easy.  Come November 17, this will change.  There are new rules that will make the application process a bit tougher.

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About the Author:
Rob K. Blake, home loan expert and author, educates mortgage shoppers on finding local providers by state like New York Mortgage Brokers and Lenders and provides reviews of national companies like AmTrust Bank Mortgage.
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