Cost

• Mortgage lenders charge thousands of dollars when refinancing a home. In addition to third-party costs for the appraisal, the title report, the recording fees and all of the other charges required for a mortgage, the lender often charges an origination fee, which can be thousands of dollars in itself. Often lenders charge one or more origination points. One origination point is simply 1 percent of the loan amount. Because lenders charge points, it's often more expensive to refinance a $400,000 loan than a $200,000 loan. Even if the mortgage loan saves the borrower a significant amount of money each month, no actual savings exist until after the homeowner recoups the closing costs.
  
  

Benefit

• Homeowners should ensure that there is a clear benefit before agreeing to refinance a mortgage. If the homeowner just purchased the home, interest rates may not have dropped enough in the first six months or year to make refinancing profitable. Many experts suggest a homeowner should lower his interest rate by at least ½ to 1 percentage point before considering a refinance. This helps ensure that the cost of the refinance is worth the monthly savings. The homeowner should remember that if he finances his closing costs into the new mortgage loan, they accrue monthly interest just like the rest of the loan.
  
  

Determining the Value of the Home

• Homeowners wishing to refinance right after they purchase a home often do so because they want to use the appraised value of the home instead of the purchase price. The homeowner may purchase the home for significantly less than its market value. Interest rates often reflect the risk the loan presents. Homes with larger percentages of equity usually can be financed at lower interest rates. Usually lenders require that the homeowner use the lesser of the appraised value or the purchase price when determining the amount of equity in the home. Some lenders allow a homeowner to use the appraised value during a refinance closing shortly after a purchase, while many require that the homeowner wait at least six months before using the market value of the home instead of the purchase price.
  
  

FHA Requirements

• The Federal Housing Administration requires that the homeowner own the home for at least six months before refinancing. FHA does this to discourage predatory practices by mortgage lenders and artificially high mortgage and home values. It also prevents a homeowner from refinancing without a clear benefit.