FHA Home Loan Early Payoff Options
May 1, 2024
Do you want to pay off a 15-year or 30-year FHA mortgage ahead of schedule? There are several ways to do this and different reasons for doing so.
One of the perks of an FHA mortgage for a single-family home is that FHA loan guidelines do not permit the lender to charge you a penalty just for paying the mortgage off ahead of schedule.
Some conventional loans require this, and the lack of an early payoff fee is a consumer-friendly perk of FHA mortgages.
A Larger Down Payment
Some borrowers choose FHA mortgages because they don’t have the same downpayment guidelines as conventional mortgages. Some conventional loans require you to pay as much as 5% down and require 20% down to avoid mortgage insurance.
If you can make a larger down payment on your FHA mortgage, you can potentially lower your monthly mortgage payment, especially if you do so without including add-ons to the loan, such as finance closing costs.
This strategy should be considered if you plan on keeping the house long-term, as the savings may not be worth the out-of-pocket expense if you plan to stay only a short time.
A Larger Monthly Payment
Another strategy for those who plan to stay home long-term is making a bigger monthly mortgage payment. This option gets you closer to an early payoff without requiring a large upfront expense in the form of a higher down payment.
That said, combining these two approaches if you plan on keeping the home long-term makes sense.
Refinancing
Why consider refinancing as an early payoff option? Doesn’t this just give you a new loan with a new loan term? The short answer is yes, but if you purchased a home with an FHA adjustable rate mortgage or are in a conventional loan with an interest rate higher than you’d like, refinancing (non-cash out) makes sense.
Refinancing the loan pays it off early, and the new loan begins on closing day. That means your payments become predictable if you refinance out of an adjustable-rate mortgage into a fixed-rate loan.
There are other reasons to refinance, including home renovation using an FHA 203(k) rehabilitation loan. If it is time to renovate your property, you can pay for the work with the 203(k) refinance loan option without worrying about an added penalty for an early payoff.
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One of the perks of an FHA mortgage for a single-family home is that FHA loan guidelines do not permit the lender to charge you a penalty just for paying the mortgage off ahead of schedule.
Some conventional loans require this, and the lack of an early payoff fee is a consumer-friendly perk of FHA mortgages.
A Larger Down Payment
Some borrowers choose FHA mortgages because they don’t have the same downpayment guidelines as conventional mortgages. Some conventional loans require you to pay as much as 5% down and require 20% down to avoid mortgage insurance.
If you can make a larger down payment on your FHA mortgage, you can potentially lower your monthly mortgage payment, especially if you do so without including add-ons to the loan, such as finance closing costs.
This strategy should be considered if you plan on keeping the house long-term, as the savings may not be worth the out-of-pocket expense if you plan to stay only a short time.
A Larger Monthly Payment
Another strategy for those who plan to stay home long-term is making a bigger monthly mortgage payment. This option gets you closer to an early payoff without requiring a large upfront expense in the form of a higher down payment.
That said, combining these two approaches if you plan on keeping the home long-term makes sense.
Refinancing
Why consider refinancing as an early payoff option? Doesn’t this just give you a new loan with a new loan term? The short answer is yes, but if you purchased a home with an FHA adjustable rate mortgage or are in a conventional loan with an interest rate higher than you’d like, refinancing (non-cash out) makes sense.
Refinancing the loan pays it off early, and the new loan begins on closing day. That means your payments become predictable if you refinance out of an adjustable-rate mortgage into a fixed-rate loan.
There are other reasons to refinance, including home renovation using an FHA 203(k) rehabilitation loan. If it is time to renovate your property, you can pay for the work with the 203(k) refinance loan option without worrying about an added penalty for an early payoff.
------------------------------
RELATED VIDEOS:
The ARM is an FHA Adjustable Rate Mortgage
A Few Tips About Your Fixed Rate Mortgage
Monthly Payments Establish Good Credit
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