Mortgage Advice

Is Refinancing from an FHA Loan to a Conventional Loan Right for Me?

September 19, 2017

Known for its flexible qualifying requirements and feasible down payment options, FHA loans provide significant benefits for numerous homebuyers.

While an FHA loan may have suited your needs when you bought your house, your financial circumstances have probably changed and you may be in a better position to take advantage of the benefits that come with a conventional loan.

Here are a few things to consider when trying to decide whether refinancing from an FHA loan to a conventional loan is right for you.

Take Advantage of Rising Property Values

Staying on top of property values and current interest rates is not only a smart strategy for homebuyers on the hunt for the perfect house, existing homeowners can take advantage of this valuable information to manage their mortgage more effectively.

Whether you hear it on the news or know from personal experience, home values are continuing to rise. While this has shifted the housing market largely in favor of sellers, increasing property values are also benefitting existing homeowners by allowing them to build more equity and decrease their loan-to-value (LTV) ratio.

This is good news for homeowners looking to get rid of their private mortgage insurance (PMI)! More on this below.

Reduce your Private Mortgage Insurance

Whereas PMI is permanent and cannot be removed from FHA loans, conventional loans come with the ability to remove PMI once a homeowner has at least 20% equity in their home. PMI on conventional loans is also typically lower than it is for FHA loans. 

This means, if you refinance from an FHA loan to a conventional loan, you could decrease the amount of PMI you’re paying on your monthly mortgage payment, or eliminate PMI completely, depending on your LTV.

Ask Your Lender About Lowering Your Interest Rate

Historic low interest rates have put homeowners in a great position to save even more money when they refinance. If you’re thinking about refinancing, it’s best to act quick because rates aren’t expected to stay low for long.

Interest rates are often determined by a number of different factors, including your credit score, the length of your mortgage, type of loan and more. Talk to a mortgage professional to see how refinancing from an FHA loan to a conventional loan could impact your interest rate.

Maximize Your Long-term Savings

With the ability to lower your PMI, and the possibility of obtaining a lower interest rate, refinancing to a conventional loan could save you money in more areas than one.

Nonetheless, looking at the number of years left on your mortgage loan can feel daunting. If your goal is to pay off your house quicker, you may also want to consult with a loan officer about refinancing to a shorter term. By analyzing your current mortgage program and long-term financial goals, they will be able to help you determine whether that’s a route worth exploring.

Interest rates are generally more favorable on 15-year fixed-rate mortgages than 30-year fixed-rate mortgages. And with today’s low interest rates, you may be able to keep your monthly payments from dramatically increasing, while reducing the amount of time you’re paying on your loan, saving you thousands of dollars in the long run.

Deciding if and when to refinance can be a confusing process, but it doesn’t have to be. Whether you’re interested in learning more about refinancing, or it has been a financial goal of yours for quite some time, our team of experienced loan officers can help.

Have a question or want to learn more? Send us a message and we’d be happy to provide you with an answer!