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Refinance timing advice for 100 percent

We were wondering how soon we can refi the 100% loan for an 80/20 and drop the PMI?

We are buying a new home as first time buyers. We didn't have a large down, or a score above 700 so we have a very high PMI rate on a 100% loan. We will be working on our credit over the next few months, we were wondering how soon we can refi the 100% loan for an 80/20 and drop the PMI?

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Bill's Answer
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If you bought a home with 100% mortgage financing, you are not required to wait for equity to build in the home before refinancing your current mortgage.

However, most home owners do wait until they have some equity in their homes before refinancing, as obtaining a 100% refinance loan can be more difficult than qualifying for 100% financing at the time of purchase. When making loan decisions, one of the most important factors potential lenders review is the loan-to-value ratio, or LTV, of the proposed loan. This ratio compares the amount of the loan you are trying to obtain to the current value of your home. The interest rates charged on 100% loan-to-value refinance loans, such as the one you propose in your question, are generally higher than the rates charged on loans with a with lower loan-to-value ratios (it's intuitive, since they are riskier loans for the lender). However, if your credit score has increased significantly since you first purchased your home (or if your income has risen), you may be able to obtain a lower interest rate despite the fact that you are refinancing at 100% LTV.

You should contact several potential lenders to discuss the loan terms they can offer you on a refinance loan. After speaking with several lenders, you should be able to determine whether or not a refinance loan is a financially viable option for you.

If you want an introduction to pre-screened mortgage lenders, makes it easy to compare mortgage offers and different loan types. 

Another problem encountered by many borrowers trying to refinance their home loans are early refinance penalties charged by their current lenders. Many loan agreements, especially 'sub-prime' loans designed for borrowers with credit problems, state that borrowers must pay a penalty to their current lender if they wish to refinance their loan before the expiration of a certain period defined by the loan agreement. These 'penalty periods' vary from loan to loan, but are frequently between two to five years from the date of the original mortgage. Before you attempt to refinance your current mortgage, you should contact your current lender to discuss whether or not your current loan agreement includes a prepayment penalty, and if so, its amount and when you can refinance without penalty. These penalties can be quite costly, and can easily make a refinance loan too expensive to save you money over your previous loan. Again, you should find out the amount of the penalty, if any, on your current loan, then contact several potential refinance lenders to discuss whether or not a refinance loan is a practical solution for you.

To learn more about refinance loans, I encourage you to visit the Home Refinance Information page.

If you are looking for a mortgage, you can receive a free, no-obligation mortgage quote from one of's pre-screened mortgage lenders..

I wish you the best of luck in finding a loan the meets your needs.

I hope that the information I have provided helps you Find. Learn. Save.



(6 Votes)
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  • BA
    Oct, 2009
    That is great news for you, and certainly frees you up to refi anytime that it works for you. Thanks for the post Terrence, and we are happy to hear that finally the concept of prepayment penalties that prohibit consumers from refinancing (due to the penalties) are diminishing. Bill
  • T
    Oct, 2009
    To follow up on this issue, we recently went to refinance and discovered that our lender did NOT include a prepayment penalty in our new loan. They told us that most banks and lenders are now prohibited from including a prepayment penalty with new refinance loans. Apparently this is part of the new crackdown on risky and unsuitable loans. Does anyone know if this is true?