I bought a home in July with a conventional loan at a 7.125% interest rate. To reduce my monthly payments, I entered into a 2-year Buydown Agreement, which means I can get a refund of $11,000 if I refinance before the two years are up.
Now that rates are dropping, I contacted my mortgage lender (a friend) about refinancing. She mentioned I need to live in the home for six months before refinancing. Is that true? Does it only apply if I refinance with the same lender? I’ve heard she might be concerned about losing her commission, which could be why she’s saying that.
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You don’t necessarily have to wait six months to refinance, but your lender may be worried about an Early Pay Off (EPO) penalty. If a loan is paid off within four to six months, the mortgage servicer that bought the loan could incur financial losses, leading them to impose penalties to mitigate that risk. Your lender might be advising you to wait to avoid this penalty. This concern isn’t specific to refinancing with the same lender; it relates more to the timing of how quickly the loan is paid off after it was originated.
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Some programs require a 12-month commitment, which may not be related to an EPO.
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I would recommend waiting a bit longer; rates are expected to decrease over the next six months.
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I would recommend the same thing.
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Tell your lender friend that you’ll refinance with her now to avoid a total loss, or you could wait for six payments. Alternatively, you can reach out to another lender to refinance, but your friend might end up being charged back for the loan unless her company absorbs the loss.
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You can refinance now, but it’s best to avoid doing it with your friend. If he refinances your loan before six months have passed, he or his company will need to repay the commissions from the original loan. So, it wouldn’t be advantageous for them to process another loan until after that six-month period. However, you’re free to refinance with any other company at this time.
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It could be that she will lose her commission if you refinance before six months, or you might not be able to use your home’s current value. Instead, you would have to go with the appraisal value from when you bought the home.
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I’m surprised this wasn’t ranked higher. There’s a six-month seasoning period to use the new appraised value for conventional loans. The loan-to-value ratio affects not just the interest rate but also the PMI. Forcing your loan officer to pay back their commission and work for free feels unethical.
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If it’s your friend, consider waiting a few more months. Rates are expected to be lower after six months, and your friend won’t need to repay their commission.
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I’m currently under contract to buy, and my mortgage lender mentioned a six-month timeframe to refinance. However, I plan to wait until at least 2025, as it’s expected that rates may drop below 6% by the end of this year.
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Most of my borrowers are currently below 6%.