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Need Cash? How Soon Can You Refinance a Mortgage?

flik eco finance personal how soon can you refinance a mortgage

Need cash? If so, you’re probably wondering how soon you can refinance your mortgage. But what are the benefits and downfalls of the process? Read ahead to find out how you can get some much-needed cash out of your home.

How Soon Can You Refinance a Mortgage Table of Contents

What is Refinancing a Mortgage?

Why Do People Refinance a Mortgage?

How Soon Can You Refinance a Mortgage?

How Do You Refinance a Mortgage?

Rate-and-Term Refinancing

Cash-Out Refinancing

Cash-In Refinancing

What Should You Avoid When Refinancing a Mortgage?

Refinancing Your Mortgage Using An FHA Loan Or VA Loan In The USA

What is Refinancing a Mortgage?

Let’s start by explaining what refinancing a mortgage actually is, and why you might want to do it. Simply put, refinancing a mortgage means that you take out a new loan to pay down your original mortgage. It’s basically just a loan to pay off a loan on a big scale.

Refinancing your mortgage is a lot like getting your mortgage in the first place. You check out the different rates and terms being offered by banks and high street lenders and see who is offering the best option for your needs. Next, you look at your current mortgage and see if this is a better deal. 

 If your credit rating has improved since you got your original mortgage, you’ll probably get a better rate this time around. That can free up some cash and make your monthly payments lower. 

 Just be sure to look out for closing costs. You’ll have to pay a refinancing fee to your lender, so think of it this way - if the fee is £3500 yet your new payments are only £75 per month lower than what you pay now, it will take you almost 4 years to make the refinancing worth it. Of course, you can try to pay that down sooner, but some mortgages have repayment penalties, so watch out. 

Why Do People Refinance a Mortgage?

People refinance for many different reasons. You might want to release some cash, set up a longer repayment term to reduce your monthly repayments, or take advantage of lower interest rates. 

Here are some of the most common reasons people refinance their mortgages: 

  • Take out some cash - Need cash now, and want the option to pay it back over time? Refinancing your mortgage can give you some fast stacks. This is especially true if you have a lot of equity in your home. Use the cash for bills, to pay out your ex, or make home improvements. 
  • Get better interest rates - Did you know that you might qualify for lower interest rates now than when you signed your mortgage? It’s true - if you now have better credit than you used to, or if bank interest rates have dropped, you could save money on your monthly payments. 
  • Change your rate type - Your original mortgage might have an adjustable rate, so you can make the switch to a fixed-rate loan. This could help you avoid market fluctuations. 
  • Change your loan term - If you’re in a position where you can shorten your loan term (and pay higher monthly payments), you’ll usually qualify for a lower interest rate. This means going from 30 years to 20 or even 15 years. However, if you want to make lower monthly payments, you’ll need to make your loan term longer, so the amount is spread across more time. 

How Soon Can You Refinance a Mortgage?

In most cases, you can refinance around six months after you qualified for your current mortgage. You could potentially save thousands of pounds per year or get yourself some cash. 

Of course, you must qualify for refinancing in the first place. Your lender is going to look at a bunch of different factors before they decide to refinance your mortgage or not. For instance, if your credit score has gone down since you got your mortgage, you might get denied.

Here are some other things they’ll look at:

  • Payment history on your mortgage - They want to see that you pay your mortgage on time and don’t ever miss payments.
  • Employment history - Lenders will want to check out your employment history to see if you’ve changed jobs since getting your mortgage.
  • Income history - Similarly, they want to look at your income and whether it’s gone up, down, or stayed the same.
  • Credit score – Lenders will also want to look at your current credit score. Here’s how to find out if it’s high enough for a mortgage in the first place.
  • Monthly payments and debt – In addition to your current mortgage payment, they’ll also want to check out your monthly expenses. After all, owning a house is expensive!
  • Your equity – How much equity do you currently have in your home? That is, how much of your mortgage have you paid off?
  • The house’s current value – Has your house appreciated in value since you bought it? Or have you lost money on the investment? Have you added extra value with renovations or an extension?

If your answers meet a lender’s criteria, they’ll offer you a refinancing package. The better your answers, the better the terms, so it’s all about keeping your credit score sparkling clean.

How Do You Refinance a Mortgage?

If you’re ready to refinance your mortgage, start by researching the lenders out there and what they offer. You don’t have to stick with your current bank, so it pays to shop around. However, most people choose to stick with their original lender based on the relationship they’ve already built up. 

Next, choose which type of refinancing you want to go with. There are three main types of refinancing available, so you need to decide which is best for your needs: rate and term, cash out, or cash in. 

Rate-and-Term Refinancing

This is the most common type of refinancing, allowing you to change your interest rate or the loan term (or sometimes even both). This will help you lower your monthly payments or your overall repayment period. 

Cash-Out Refinancing

This is probably what you’re after. Cash-out refinancing allows you to ‘cash out’ or withdraw some of your equity. It usually results in a higher overall loan amount, because you are taking out some of the money you’ve already paid on your mortgage. This is a popular option for people who want to access fast cash for renovations or emergencies. 

Cash-In Refinancing

This is the least common type of refinancing. With cash-in refinancing, you actually bring a lump sum of money to the lender so you can lower your balance and qualify for a lower interest rate. 

Of course, if you’re trying to get some extra cash fast, you’re probably going to go with option 2 – the cash-out refinancing loan. Speak to your preferred lender about applying, which is usually done online. 

That said, it’s important to remember that refinancing applications can affect your credit rating, so don’t go crazy applying with multiple lenders.

For one, the application includes a hard credit check, which knocks your score down a few notches. You might also experience a drop in your credit score when you switch over to the new loan, as your ‘length of credit’ history will be impacted. 

Don’t actually go through the application process as you ‘shop around’ for a new offer, as too many applications in a short time will impact your score as well. Overall, if your credit score is pretty good, you likely won’t see much of a change after you refinance. However, if your credit is in a dodgy place, you’ve got to be careful that you don’t lower it too much, as you could have trouble getting approved. 

What Should You Avoid When Refinancing a Mortgage?

Okay, you need some cash, and refinancing seems like the perfect solution. But remember, there are some negatives when refinancing your mortgage.

 Not searching for the best rates

Going with your current lender ‘just because you know them’ is a huge mistake. You can miss out on better rates and terms if you don’t shop around

Forgetting About Your New Higher Payments

Some people get so excited about their new wodge of cash that they forget about their higher loan amount. This means you’ll have higher monthly payments.

Refinancing At The Wrong Time

You might see low interest rates and think that now is the best time to refinance. However, if your credit score has decreased or there is now less than half a percent difference between your original rates and current rates, it’s the wrong time.

Forgetting About Closing Costs

Closing costs on your newly refinanced mortgage are around1% to 2% of your home’s current value. That’s its value now, not when you first bought it. Do you have enough to cover this?

Focusing On The Interest Rate And Not The APR

When you’re shopping around for refinancing, most people tend to focus on interest rates. However, the APR is a more accurate representation of how much your loan will cost in the long run. While the interest rate is how much the lender is charging you, the annual percentage rate (APR) also includes fees and closing costs for a more accurate total.

Confused about APR? Check out our dummies guide to APR for personal finance.  

Refinancing Your Mortgage Using An FHA Loan Or VA Loan In The USA

For our American readers, there are a few other ways to refinance your mortgage that aren’t available in the UK. 

With a Federal Housing Association (FHA) loan, you can refinance your home as long as it is your primary residence. This is a popular option for people whose homes have increased in value since they first moved in. To qualify for the FHA’s cash-out refinancing, you need to take out at least 20% of your equity.

Similarly, a Veteran’s Affairs (VA) loan allows you to refinance your home (as long as it’s your primary residence) with a cash-backed loan. These are both attractive options with good rates and terms, so it’s worth looking into whether they’re the best lenders for your needs.

Do you know someone who needs cash? Share this article with them and help them out. 


About Jermaine Hagan (The Plantsman)

Jermaine Hagan, also known as The Plantsman is the Founder of Flik Eco. Jermaine is the perfect hybrid of personal finance expert and nemophilist. On a mission to make personal finance simple and accessible, Jermaine uses his inside knowledge to help the average Joe, Kwame or Sarah to improve their lives. Before founding Flik Eco, Jermaine managed teams across several large financial companies, including Equifax, Admiral Plc, New Wave Capital & HSBC. He has been featured in several large publications including BBC, The Guardian & The Times.

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