What FHA Refinance Loans Offer

August 30, 2023

Many buying homes with home loans at or near 7% interest will likely consider refinancing these loans once rates adjust lower.

If you were unable to wait out the current housing market and had to purchase property despite higher FHA mortgage loan rates, knowing your FHA refinance options will be crucial once rates begin a recovery.

But the things you need to know go above and beyond your options for the loan. 
Yes, you can choose an FHA cash out refinance loan, an FHA streamline refinance, or even an FHA reverse mortgage if you are aged 62 or older and own your home or are close to paying it off. But there’s more to know.

FHA Refinance Loan Closing Costs

If you are thinking of refinancing later down the line when rates are lower, it’s smart to start a savings fund for your closing costs now. Add a small amount of money each month in the early stages and increase that amount as you get closer to loan application time.

This is the best approach to lower your monthly FHA mortgage payment by refinancing. Avoid financing the closing costs, no matter what kind of FHA refinance loan you choose. That includes the FHA mortgage insurance premium.

Paying more in cash at closing time helps your bottom line by not pushing the monthly mortgage payment higher because of add-ons to the base loan amount.

You may also want to consider avoiding the optional FHA energy efficient mortgage (EEM) package, an add-on to the loan providing extra funds for energy-saving upgrades.

That said, if the upgrades make sense and offset some of the costs of adding the EEM, it may be worth running the numbers with and without that add-on to see how it affects your mortgage payment.

FHA Refinance Loans With or Without Cash Back

FHA has both cash-out refinance options and those that have no cash back to the borrower. Some are more interested in repairing or renovating their home and will opt for either an FHA rehabilitation loan or a cash out refinance.

But for those who don’t want these options and just need a lower rate, an FHA simple refinance or no cash out refinance are options to ask your loan officer about.

FHA Refinance Loan Terms

You do not have to refinance your loan into the same loan term you got originally. Are you close to the halfway mark on your loan?

You can apply for a 15-year refinance loan term instead. If you prefer to get lower payments, you can refinance with a 30-year term, but the amount of monthly savings you realize will depend greatly on how long you have been paying down the original loan.

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