Buying your first house is like climbing a mountain with a large backpack. Refinancing is a totally different issue. This is not about fixing something that you should have done differently earlier. Refinancing is a smart financial decision that can be made under some circumstances only.
It is all about clear numbers. You are not supposed to do refinancing if the rates you are observing right now are not at least 0.75% cheaper than your initial loan. Ideally, you should think of having some monthly savings that would cover your closing costs in two years max.
Your credit score should be improved greatly to benefit from refinancing. If you are able to raise it for 60 points compared to your score at the time of buying, you have done something really great. Financial institutions love reliable customers and reward them. This is one of your trump cards in negotiating.
Some changes in your life situation might also become a reason for refinancing. You are looking to buy an FHA loan but have problems with its Mortgage Insurance Premium feature? Then, getting a conventional loan will help you get rid of this additional cost. Or perhaps, you want to stay in this house for 10 years, and you would prefer to have a fixed rate. It is all about making your loan fit your life situation.
But when it comes to potential risks, many first-time buyers make mistakes. Closing costs are always an additional problem to deal with. Usually, it ranges from 2% to 5% of your loan amount. You are buying your house once again in its entirety. If you roll the costs into your loan, you will be paying interests on fees for 30 years.
Lengthening your loan term might become another mistake in your refinance. When you take a 30-year mortgage, you are starting a cycle again. Yes, this option is going to lower your payments, but increase the total sum because of higher interest. It is a bad idea.
Adjustable Rate Mortgages might look like a solution because of lower teaser rates. But it is the game with fire. If you are planning to live in your house for more than 3-5 years, you are playing Russian roulette with your home. The initial rate will be adjusted, and in 95% of cases, it will go up.
There are also some additional costs connected with refinancing itself. You are required to get a new appraisal of your home. You will have to sign a new contract, fill a bunch of paperwork, and get your finances checked once again. If you have made some progress in the meantime, you might not even be eligible for a loan anymore. Refinancing is a full reassessment of your finances.
Summarizing, it should be said that refinancing is a business deal, not some kind of charity for you. The lending institution profits and you are supposed to profit too. There should be some break-even calculations done. If you are planning to sell your home in two years and the break-even point comes in four, you better leave it alone.