Selling your house after a mortgage refinance is possible, but there may be some rules and fees you should know about before you do. Some clauses in mortgage contracts can keep you from selling for a period of time or charge you a penalty if you pay off your mortgage too soon.
Below, we’ll help you find out what requirements in your mortgage contract to look out for, what other financial implications you might encounter, and whether selling after refinancing is a smart financial move.
We also recommend working with a low-commission real estate agent to make sure you make a profit on selling a refinanced property. When you work with Clever, you can sell for just 1.5% and still get full service—that's roughly half the going rate. Get matched with local Clever agents by zip code.
Is there a penalty for selling your home after refinancing?
There could be. There may be penalties for selling your property soon after refinancing, but the definite answer would depend on your lender. There are two main issues you ought to double-check in your agreement if you consider pursuing a refi: an owner-occupancy clause and a prepayment penalty.
Owner-occupancy clause
An owner-occupancy requirement is a legal obstacle that could prevent you from selling your house immediately after refinancing or even renting out to tenants. This requirement can state that the person who signs for the loan has to either live on the property or own it for a set amount of time after the refinancing.
The average timeframe for an owner-occupancy clause to remain in effect is about six to 12 months, but it’s always advisable to talk to your lender and read the fine print of your new mortgage note to make sure. If you decide to sell your home too soon after refinancing, your lender could accuse you of mortgage fraud. But life happens, and if you have to relocate for serious reasons right after refinancing, talk to your lender to see if they can waive the clause or offer an alternative. They usually are willing to work with you.
Prepayment penalties
The prepayment penalty clause is the second thing to check in your mortgage contract. It usually requires you to pay a fee based on a percentage of your outstanding balance, but the exact number depends on the mortgage lender. For example, if you have a 3% prepayment penalty and a principal balance of $200,000, the prepayment penalty would be $6,000.
This was a common practice for lenders to protect themselves against interest income loss. Now, it is not too widespread, but it is still worth checking for in the fine print of your contract. By law, your lender is required to disclose any prepayment penalty fee on your monthly mortgage bill and any other communication from your lender. Your mortgage note should also clearly disclose the prepayment penalty fee in your contract.
Closing costs
Every refi comes with similar closing costs you’d expect to pay when buying a house. According to Freddie Mac,[1] refinancing costs are 3-6% of your loan amount, on average. So, if you are refinancing a $500,000 mortgage, the closing costs can be anywhere from $15,000 to $30,000. The exact number would depend on many factors, including your location, lender, credit score, and loan size.
These are some of the fees homeowners will face when deciding to refinance:
- Application fee
- Appraisal fee
- Underwriting fee
- Title services
- Attorney fees
Reasons to refinance a home before you sell
There are a few reasons why homeowners might decide to refinance a mortgage before putting their home on the market.
- They want to take advantage of better interest rates and don’t plan to sell for a few years. Refinancing to take advantage of lower interest rates to get a lower payment is a fairly common practice for homeowners. But this only makes sense if you can recoup the closing costs from a refinance when you sell your home, which will depend on how much equity you have in your home and what you sell it for.
- They want to switch from an adjustable-rate mortgage (ARM) to a fixed-rate mortgage (FRM). If the interest rates are significantly lower than when you got the mortgage in the first place, it may be financially beneficial to switch to a fixed-rate mortgage. Also, some homeowners convert to a fixed-rate mortgage for more stability since the monthly payments won’t change as the rates adjust.
- They want to tap into their home’s equity. If you have accumulated enough equity in your house over the years, a cash-out refinance can help you access these funds. If you plan to sell your home soon, you can use this money to make improvements to your home that can increase the property's value, for instance.
- They want to repay a mortgage faster. Another popular reason to refinance is to shorten the mortgage term, which will help build equity faster. This could potentially increase your profit margin when selling the home.
In most cases, owners want to refinance to take advantage of favorable conditions and save money in the long run. Some of these options (such as cash-out refinancing) can benefit owners who want to sell their property soon. With others, you could actually lose money if you put the home on the market too early.
How long should you stay in your house after refinancing?
After you refinance, you’ll want to stay in your house at least long enough to recoup the closing costs from the refinance when you sell. Technically, if you don’t have an owner-occupancy clause, you can put the home on the market as soon as you refinance. But it may not be practical from a financial perspective—depending on your equity and selling price.
If you want to refinance with the goal of saving money, remember that these savings don’t kick in immediately when you look at the bigger picture. First, you would have to recoup the cost of refinancing, and only then would you reach the break-even point. Depending on the specifics of your mortgage, it could take you many years to save as much money in interest as you paid in closing costs.
| Timeline for selling | Outcome |
|---|---|
| Less than 2 years | Loss of money in most cases |
| 2-5 years | Possible break-even |
| More than 5 years | Increasing chance of profit |
If you plan to move in the next year or two, don’t refinance. It’s very difficult to redeem the costs of refinancing in so short a time. Generally, experts agree that refinancing is financially appropriate when you intend to stay in your home for at least the next five years.
Calculating the break-even point when refinancing
Are you wondering how long you should stay in your house after refinancing for it to make sense financially? Here’s an example of how to calculate the break-even point for your case.
Let’s say your refinance costs were $8,000, and your monthly savings after refi are $150. If you divide costs by savings, you see that you need to live in your home for around four and a half years (53 months) to break even.
Should you sell your home after refinancing?
Deciding whether to sell your house after refinancing depends on your lender, your reasoning, and other circumstances. If you’ve checked to make sure you’re not obligated to fulfill any owner-occupancy requirements and you won’t be paying a huge prepayment penalty, you’ll then want to make sure it makes financial sense.
If you're planning to sell your home and are wondering whether you should refinance, we highly recommend consulting a local real estate agent first. An experienced realtor can help you decide whether refinancing is a good financial decision in light of when you want to sell your house and how much you could likely get for it.
Clever vets top performing agents on your behalf so you can be sure you're working with the best. We also negotiate excellent rates with our agents—you can sell for just 1.5% when you work with Clever. Find Clever agents near you.
FAQ about selling your house after refinancing
Can you refinance if your home is on the market?
While refinancing when your home is listed for sale is technically possible, it doesn’t happen often and isn’t a good idea. Usually, lenders are reluctant to approve a refi if they see that the owner is planning to sell and would ask you to remove the property from the market first.
Do I have to pay taxes on a cash-out refinance?
You don’t usually have to pay taxes on a cash-out refinance since the IRS considers it to be a loan instead of taxable income. But if your gains exceed the capital gains limits and you sell the house later, you may be eligible to pay taxes on the proceeds then.
How long should you keep mortgage documents after a refinance?
It is recommended to keep all current refinancing documents and the paid-in-full letter from your old mortgage for at least three years, although some tax professionals extend this period to seven years after the property was sold.
Is it bad to refinance your house multiple times?
It is not necessarily bad to refinance your house multiple times. If used wisely, refinancing is a tool that can get you better interest rates on a mortgage or allow you to shorten the life of your loan. But each time you refinance your house, you’ll be on the hook for closing costs, so you’ll have to weigh whether you’ll still benefit from this move financially.