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Are you ruminating about a refi? How long you must wait to refinance depends on the kind of mortgage you have and whether you want cash out.

You can typically refinance a conventional loan as soon as you want to, but you’ll have to wait six months to apply for a cash-out refinance.

The wait to refinance an FHA, VA, or USDA loan ranges from six to 12 months.

Before any mortgage refinance, homeowners will want to ask themselves: What will the monthly and lifetime savings be? What are the closing costs, and how long will it take to recover them? If I’m pulling cash out, is the refinance worth it?

Refinance Wait Time Based on Mortgage Type

How soon can you refinance? The rules differ by loan type and whether you’re aiming for a rate-and-term refinance or a cash-out refinance.

A rate-and-term refi will change your current mortgage’s interest rate, repayment term, or both. Cash-out refinancing replaces your current mortgage with a larger home loan, allowing you to take advantage of the equity you’ve built up in your home through your monthly principal payments and appreciation.

Conventional Loan Refinance Rules

If you have a conventional loan, a mortgage that is not insured by the federal government, you may refinance right after a home purchase or a previous refinance — but likely with a different lender.

Many lenders have a six-month “seasoning” period before a borrower can refinance with them. So you’ll probably have to wait if you want to refi with your current lender.

Cash-Out Refinance Rules

If you’re aiming for a cash-out refinance, you normally have to wait six months before refinancing, regardless of the type of mortgage you have.

FHA Loan Refinance Rules

An FHA Streamline Refinance reduces the time and documentation associated with a refinance, so you can get a lower rate faster.

But you will have to wait 210 days before using a Streamline Refinance to replace your current mortgage.

VA Loan Refinance Rules

When it comes to VA loans, the Department of Veterans Affairs offers an interest rate reduction refinance loan (IRRRL), also known as a VA Streamline Refinance.

It also offers a cash-out refinance for up to a 100% loan-to-value ratio.

The VA requires you to wait 210 days between each refinance. Some lenders that issue VA loans have their own waiting period of up to 12 months. If so, another lender might let you refinance earlier.

USDA Loan Refinance Rules

The streamlined assist refinance program provides USDA direct and guaranteed home loan borrowers with low or no equity the opportunity to refinance for more affordable payment terms.

Borrowers of USDA loans typically need to have had the loan for at least a year before refinancing. But a refinance of a USDA loan to a conventional loan may happen sooner.

Jumbo Loan Refinance Rules

For a jumbo loan, even a rate change of 0.5% may result in significant savings and a shorter time to break even.

How soon can you refinance a jumbo loan? A borrower can refinance their jumbo mortgage at any time if they find a lender willing to do so.

Top Reasons People Refinance a Mortgage

If you have sufficient equity in your home, typically at least 20%, you may apply for a refinance of your mortgage. Lenders will also look at your credit score, debt-to-income ratio, and employment.

If you have less than 20% equity but good credit — a minimum FICO® score of 670 — you may be able to refinance by accepting a higher interest rate or mortgage insurance.

Here are the main reasons borrowers look to refinance.

•   Reduce the interest rate. Refinancing to a loan with a lower rate is the point of refinancing for most homeowners. Just calculate your break-even point, when the closing costs will have been recouped: Divide the closing costs by the amount to be saved every month. If closing costs will be $5,000 and you’ll save $100 a month, it will take 50 months to break even and begin reaping the benefits of a refi.

•   Shorten the loan term. Refinancing from a 30-year mortgage to a 15-year loan usually results in a substantial amount of loan interest saved, as this mortgage calculator shows. Or you may refi to a 20-year term. If you’re years into your mortgage, resetting to a new 30-year term may not pay off.

•   Tap home equity. Here’s how cash-out refinancing works: You apply for a new mortgage that will pay off your existing mortgage and give you a lump sum. A lower interest rate may be available at the same time.

•   Shed FHA mortgage insurance. In many cases, the only way to get rid of mortgage insurance premiums on an FHA loan is to sell your home or refinance the mortgage to a conventional loan when you have 20% equity in the home — in other words, when your new loan balance would be at least 20% less than your current home value.

•   Switch to an adjustable-rate mortgage or from an ARM to a fixed-rate loan. Depending on the rate environment and how long you expect to keep the mortgage or home, refinancing a fixed-rate mortgage to an ARM that has a low introductory rate, or an ARM to a fixed-rate loan, may make sense.

Mortgage rates are no longer at record lows. But they’re still pretty low by historical mortgage rate standards.

And rates are not the be-all, end-all. Home equity increased for many homeowners as home values rose. That’s attractive if you want to tap your equity with a cash-out refinance.

Closing costs can often be rolled into the loan or exchanged for an increased interest rate with a no closing cost refinance.

Refinance Your Mortgage With SoFi

How soon can you refinance? If it’s a conventional loan, whenever you want to, although probably not with the same lender within six months. Otherwise, if you must bide your time before refinancing or you’re waiting for rates to abate, that gives you a lull to decide whether a traditional refinance or cash-out refi might suit your needs.

SoFi offers both at competitive rates. And SoFi refinances jumbo loans.

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In countries where there is a carbon tax, businesses must pay a levy based on the amount of carbon emissions produced by their business operations. A carbon tax is designed to reduce the amount of carbon — also known as CO₂ emissions.

There are two types of carbon taxes: a tax on quantities of greenhouse gases emitted, and a tax on carbon-intensive goods and services such as gasoline production.

In the United States, several carbon tax proposals have been introduced in Congress, but none have yet been implemented.

How Does a Carbon Tax Work?

When a government implements a carbon tax, a price per ton of greenhouse gas emissions is chosen, and a company gets taxed that amount for every ton they emit or are responsible for.

In some cases, the price per ton increases the more an entity emits, thereby incentivizing companies to reduce and prevent emissions.

What Type of Carbon Is Taxed?

Although it is called a carbon tax, usually the price is actually per ton of CO₂ gas emitted. That’s because every fossil fuel has a particular amount of carbon content in it, and when burned each carbon molecule combines with two oxygen molecules and becomes CO₂ gas which goes into the atmosphere.

So the amount of emissions associated with the fuel can be taxed at the point of extraction, refinement, import, or use.

As many ESG investors know, burning coal emits the highest amount of CO₂, followed by diesel, gasoline, propane, and natural gas. Therefore, coal gets taxed higher than other fossil fuels. Once CO₂ is emitted into the atmosphere, it remains there for a hundred years or more, creating a greenhouse effect which heats up the planet and leads to climate change.

Only products associated with the burning of fossil fuels get taxed. So products such as plastic that contain petroleum but don’t directly result in CO₂ emissions don’t get taxed.

What Is the Economic Impact of Carbon Taxation?

Since a carbon tax increases costs across the entire supply chain, everyone from extractors to consumers are incentivized to reduce fossil fuel consumption — at least in theory.

Those being taxed can raise the prices of their goods and services, but only as much as the market is willing to pay while allowing them to remain competitive.

What Is the Social Impact of Carbon Emissions?

The theory around carbon pricing is that each ton of CO₂ should have a price equal to the social cost of carbon. The social cost of carbon is the current amount of estimated damages over time that each ton of CO₂ emitted causes today.

In addition to causing global warming, emissions and pollution typically lead to negative effects on human health and natural ecosystems. Thus investing in companies with lower carbon emissions can be considered a type of socially responsible investing.

Over time, the social cost of carbon increases, because each ton of emissions is more damaging as climate change worsens. Therefore, the price of carbon and the tax would increase over time.

Those producing emissions know that the tax will increase over time, and so investments into decarbonization are worth it to them today. For instance, a company can invest in solar energy and wind power, and while that might have a high upfront cost for them, over time it could be worth it could help them avoid a rising carbon tax.

Examples of Carbon Taxes

Understanding carbon taxes is an important facet of sustainable investing. Carbon taxes have been put into place in many countries around the world so far, and their popularity is rising. As of 2021, 35 countries had a form of carbon tax or energy tax.

•   Finland was the first country to implement a carbon tax in 1990, soon followed by Norway and Sweden in 1991. In 2021 Finland’s price per ton was $73.02. Norway is known to have one of the strictest carbon taxes.

•   The Canadian province of British Columbia implemented a carbon tax in 2008. In 2019, South Africa became the first African country to install a carbon tax.

•   Although there is not yet a federal carbon tax in the U.S., there are more than 50 regional ones. For instance, the city of Boulder, CO, implemented a carbon tax in 2006 after it passed a local vote. However, the average price per ton across these programs is very low: generally about $2.

Support for a U.S. federal carbon tax has been growing over time, but one of the things holding it back is debate about how the revenue from the tax would be used. A few ideas include: paying back consumers through a carbon dividend; using the money to fund infrastructure upgrades or low-emissions technologies, or reducing other taxes.

The Importance of Carbon Tax

Reducing global emissions is essential to stop the buildup of CO₂ in the Earth’s atmosphere. The more CO₂ gets emitted, the more the planet warms and the worse climate change becomes — including the frequency of climate-related disasters.

Global temperatures have already increased 1°C over pre-industrial levels, and if emissions are not reduced temperatures are projected to rise 4°C by the end of this century. The more temperatures rise the more the effects become irreversible and catastrophic.

A carbon tax is a powerful tool to discourage the use of fossil fuels and incentivize a shift to low- and zero-emission energy sources. This is why many people invest in green stocks.

Pros and Cons of Carbon Tax

There are several pros and cons to a carbon tax.

Some of the pros of a carbon tax include:

•   The carbon tax is a way to regulate emissions without having to actually mandate production and consumption limits directly.

•   Carbon taxes incentivize companies and individuals to reduce and avoid emissions.

•   Carbon taxes are easy to administer.

•   A carbon tax may help reduce the buildup of greenhouse gasses, which in turn may help reduce pollution, improve air and water quality, and more.

•   The revenue raised through a tax can be used to fund decarbonization efforts, environmental restoration, and other projects.

•   Other programs, such as an incentive using renewable energy, haven’t been as successful in reducing fossil-fuel use.

A few cons of a carbon tax include:

•   It can be challenging to figure out how the revenues should be spent.

•   A carbon tax can be put on any point of a supply chain and it’s hard to decide which is best.

•   It’s hard to predict how much emissions will be reduced as a result of the carbon tax.

•   If a carbon tax increases energy costs, this can have a big impact on lower-income households which tend to spend a higher percentage of their income on energy than higher-income households.

•   If one country implements a carbon tax and others don’t, then that puts local industries at a competitive disadvantage. If they have to raise prices, customers may start buying from the countries that don’t have the tax, resulting in the same or more emissions. For this reason carbon tax plans build in ways to prevent emissions leakage and issues with competition. Some of these include rebates, exemptions for particular industries, and taxation based on past emissions.

•   Companies can purchase carbon offsets or carbon credits to lower the amount they pay in taxes. They can also use those offsets to claim that they are carbon neutral or carbon negative. This isn’t exactly true, since they are still emitting carbon. The ability to purchase offsets reduces their incentive to decarbonize.

Who Regulates Carbon Taxes?

Carbon tax programs are regulated by federal, state, or local governments. Regulation involves setting the price per ton of carbon, deciding which entities get taxed, collecting the tax, and deciding how the revenues are spent.

There is an ongoing discussion about the international coordination of carbon pricing. If a minimum price per ton is set, this would eliminate issues around competition and guarantee a certain amount of effort towards emission reduction. Canada has already implemented national price coordination. The minimum price per ton in Canadian provinces and territories is CAD $50.

Which Countries Have the Highest Carbon Tax?

Below are a few of the countries that have the highest carbon tax rates. The rates are in USD price per ton:

•   Uruguay: $137

•   Sweden: $129.89

•   Switzerland: $129.86

•   Liechtenstein: $129.86

•   Norway: $87.61

The Takeaway

A carbon tax can be a powerful tool for reining in carbon emissions, and potentially helping reduce the amount of greenhouse gasses in the atmosphere. Essentially, these taxes penalize companies by making them pay a fee for CO₂ emissions relating to their products or operations.

While the U.S. doesn’t have a federally mandated carbon tax, there are state and local levies. Given concerns about climate change, it’s likely that more countries will continue to adopt and adjust carbon taxes.

If you’re interested in investing in sustainably focused businesses, you can explore your options using SoFi Invest, and start trading from your Active Invest account with as little as $5.

Photo credit: iStock/Delmaine Donson

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