Refinance Questions, Answered

When does refinancing make sense?

Refinancing often makes sense when your savings can repay the costs before you sell or refinance again, or when it reaches another goal, like changing your loan type or term. There is no single rule, because it depends on your loan, your costs, and how long you plan to stay.

The basic idea is break-even. Divide the upfront cost by your monthly savings to estimate how many months it takes to get your money back. If you may move sooner, the refinance may not pay off.

Compare total costs over the time you really expect to keep the loan, not just the monthly payment. VA also applies its own net tangible benefit and fee recovery tests on many refinances.

Sources: Data Spotlight: Trends in discount points amid rising interest rates, CFPB; How should I use lender credits and points?, CFPB; Understanding the costs of refinancing, My Home by Freddie Mac; Circular 26-19-22, VA

How soon after buying can I refinance?

It depends on the loan program and the type of refinance. Some have no waiting period, and others have several months or a year.

Lenders may add their own limits. Check your current note for a prepayment penalty too.

• Fannie Mae limited cash-out: generally no waiting period, but a recent loan that rolled a non-purchase second lien into a new first mortgage can be treated as a cash-out for six months
• Fannie Mae cash-out: existing first loan generally at least 12 months old, and a borrower on title at least six months, with exceptions
• FHA streamline: at least 210 days from closing, six payments, and six full months since the first due date
• FHA cash-out: owned and lived in as your principal residence for the prior 12 months, with exceptions
• VA streamline and VA-to-VA cash-out: generally 210 days from the first payment and six monthly payments

Sources: Cash-Out Refinance Transactions, B2-1.3-03, Fannie Mae Selling Guide; What is the seasoning requirement for a limited cash-out refinance transaction?, Fannie Mae; FHA Single Family Housing Policy Handbook 4000.1, HUD; VA Pamphlet 26-7 Chapter 6, Refinancing Loans, VA; Circular 26-19-22, VA

What is a cash-out refinance, and are Texas rules different?

A cash-out refinance replaces your mortgage with a larger loan, and you take the difference in cash. Yes, Texas is different, because a Texas homestead cash-out generally must follow Article XVI, Section 50(a)(6) of the Texas Constitution.

Those rules are stricter than most states. Loan programs also have their own seasoning rules. Talk with a Texas attorney about your own situation, since this is general information and not legal advice.

• Generally cannot close before the 12th day after the later of your application or the required notice
• Generally one such loan per year, closing no sooner than the first anniversary of the last one
• Total debt on the home is capped at a set share of fair market value
• Closes only at a lender, attorney, or title company office
• You and your spouse can cancel within three days after closing
• Generally no personal liability unless obtained by actual fraud, and foreclosure takes a court order

Sources: Texas Constitution Article XVI, Section 50, Texas Legislature; Cash-Out Refinance Transactions, B2-1.3-03, Fannie Mae Selling Guide; FHA Single Family Housing Policy Handbook 4000.1, HUD

Can I take my ex-spouse off the mortgage?

Usually, yes, but a deed or divorce decree alone does not do it. The common routes are a refinance in one person's name, or a lender-approved assumption and release of liability.

A quitclaim deed changes who owns the home, not who owes the loan. A decree can assign the debt to one spouse, but it does not bind the lender.

The CFPB says homeowners generally do not need to refinance to remove a name if they can assume liability and pass the investor's underwriting. On Fannie Mae refinances, buying out a co-owner can count as a limited cash-out refinance if the home was jointly owned at least 12 months, and being legally awarded the property can satisfy its ownership rule. Texas also recognizes owelty liens for divorce. Ask a divorce attorney about your case.

Sources: Can a debt collector contact me about a debt after a divorce?, CFPB; Issue Spotlight: Homeowners face problems with mortgage companies after divorce or death of a loved one, CFPB; Limited Cash-Out Refinance Transactions, B2-1.3-02, Fannie Mae Selling Guide; Texas Constitution Article XVI, Section 50, Texas Legislature

What does a refinance cost, and can costs be rolled in?

A refinance has closing costs much like a purchase, and they vary by lender and location. Many can be rolled into the new loan, but program rules set the limits.

Typical costs can include origination and underwriting fees, appraisal, credit report, title services, recording, and discount points if you choose them. Your Loan Estimate lists them, so compare offers line by line.

Rolling costs in raises your loan amount, which can raise your payment and reduce your equity. A no-closing-cost offer usually means a higher interest rate instead, or costs added to the loan. All mortgages involve costs to originate.

Texas sets special limits on some home equity refinances, including certain fees. Fannie Mae allows closing costs, points, and prepaid items to be financed on a limited cash-out refinance.

Sources: Understanding the costs of refinancing, My Home by Freddie Mac; Is there such a thing as a no-cost or no-closing loan or refinancing?, CFPB; Limited Cash-Out Refinance Transactions, B2-1.3-02, Fannie Mae Selling Guide; Texas Constitution Article XVI, Section 50, Texas Legislature

Does refinancing restart my loan?

Yes. A refinance pays off your existing loan and replaces it with a new one, so a new payment schedule begins with whatever term you choose.

That does not have to mean starting over at the same length. You can ask about shorter terms, and the options depend on the loan program and the lender. A longer term can lower the monthly payment, but you may pay more in total interest over time.

Before you decide, compare the new total cost against what you have left on your current loan. Check your Loan Estimate for the term, and check your current loan for a prepayment penalty. Some loans charge one if you refinance or pay off early.

Sources: Regulation Z, 1026.20, Disclosure requirements regarding post-consummation events, CFPB; Your home loan toolkit, CFPB; Understanding the costs of refinancing, My Home by Freddie Mac