Lower Your Monthly Payment With an FHA Mortgage Refinance

By Alvaro Moreira
6 min read

Lower Your Monthly Payment With an FHA Mortgage Refinance

With interest rates rising over the last few years and a housing market that’s been anything but steady, many first-time home buyers landed their dream home—and a hefty monthly payment to go along with it. You don’t have to settle for spending more than you’d like. The cost to refinance mortgage loans like yours can be earned back through a lower interest rate or by consolidating debt over time. Discover why refinancing is a great choice to begin with and learn more about your options like conventional refinancing, cash-out refinancing, and FHA mortgage refinance.

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Why Refinance If You’re a First-Time Home Buyer?

If you purchased a home at a higher rate, refinancing offers two major benefits. It can help you get a lower rate or consolidate other debt. Let’s dig a little deeper into each one.

Get a Lower Rate

Between Netflix, Spotify, and Uber rides, and grocery, utility, and mortgage bills, your monthly costs add up! Even if you’re not jumping on the “loud budgeting” trend, reducing that recurring spend can give you more flexibility in other areas—whether that’s increasing long-term savings, planning for a future trip, addressing home renovation projects, or just giving you a bit more room to breathe. You could save hundreds of dollars each month and thousands over the course of the mortgage. Imagine what you could do with that extra padding in your pocket!

Consolidate Other Debt

Medical bills, car loans, high-interest credit cards, student loans—if you’re juggling multiple sources of debt, refinancing could simplify your pay-back schedule, combining all of your debts into one monthly payment. You can even borrow more than the balance of your mortgage to bring all your loans into your home loan. Other benefits to refinancing for debt consolidation include:

  • Lower Interest Rates: If you have a mortgage with a lower interest rate than your existing high-interest debts, consolidating those debts into your mortgage can result in overall lower interest costs. Mortgages generally offer lower interest rates compared to credit cards and certain other unsecured loans.
  • Tax Deductibility: Mortgage interest is often tax-deductible, while interest on other types of debt may not be. By consolidating high-interest debt into your mortgage, you may be able to take advantage of potential tax benefits, depending on your situation. Tax laws can change, so consult a tax professional for current information.
  • Single Monthly Payment: Instead of managing multiple monthly payments, refinancing allows you to consolidate debts into a single monthly mortgage payment. This simplifies budgeting.

The total cost to refinance mortgage loans includes closing costs, appraisal fees, and inevitable unexpected expenses. The Moreira team can help you determine whether the potential savings justify the upfront expenses of an FHA mortgage refinance.

Conventional Refinancing, Cash-Out Refinance, FHA Mortgage Refinance—What’s the Difference?

If you’re a first-time home buyer looking to reduce your monthly expenses or consolidate debt, refinancing can be a great solution. There are different types of refinance options available to you. Determining which one best suits your needs is step number one.

Conventional Refinancing

Conventional refinancing refers to the process of refinancing an existing mortgage loan through a conventional mortgage program. A conventional mortgage is a home loan not insured or guaranteed by a government agency, such as the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA). Instead, conventional mortgages are typically backed by private lenders and mortgage insurance is often required if the borrower’s down payment is less than 20%. If you’ve been in your FHA mortgage for a certain period of time, the equity has gone up, so there may be additional savings per month by refinancing to conventional.

Cash-Out Refinance

With a cash-out refinance, a homeowner borrows more money than the current loan balance, receiving the difference in cash. You essentially refinance your existing mortgage with a new one that has a higher loan amount, and you receive the excess funds in the form of a lump-sum payment at closing to do with what you wish.

FHA Mortgage Refinance

An FHA refinance refers to refinancing a mortgage loan through the Federal Housing Administration (FHA) program, which ensures loans are made by approved lenders to borrowers with low to moderate incomes. FHA loans are designed to make homeownership more accessible by providing lenders with insurance against potential losses if borrowers default. If your first time buying a home involves an FHA loan, then an FHA mortgage refinance could be an option for you. Even within this category of refinancing, you have the option to choose an FHA streamline refinance, FHA cash-out refinance, or FHA Rate and Term refinance. 

Diving Deeper into FHA Mortgage Refinance Options

If you financed your first home with a loan from the Federal Housing Administration (FHA), you’ve got even more to consider as you look to reduce your monthly mortgage spend or consolidate debt through refinancing. 

FHA Streamline Refinance

This type of refinance is a simplified process that allows homeowners with an existing FHA loan to refinance without a full credit check or income verification. The goal is to make the refinancing process faster and more straightforward. A lot of first-time home buyers are looking at this option for that reason, among others:

  • Lowered monthly mortgage insurance
  • Increased loan limits
  • Flexibility
  • No downside
  • Flexible underwriting guidelines
  • Lower monthly fixed payment

FHA Cash-Out Refinance

This FHA mortgage refinance option allows homeowners to refinance their mortgage for an amount higher than the current loan balance. The excess funds can be taken as cash and used for various purposes such as home improvements, debt consolidation, or other financial needs.

FHA Rate and Term Refinance

With this option, you can change your existing FHA mortgage’s interest rate or loan term without taking cash out. It’s a way to secure a lower interest rate or adjust the loan term to better suit your financial goals.

No matter what direction you choose, the cost to refinance mortgage loans like yours can be easily calculated. Check out the Moreira team’s refinance affordability calculator to see if what you save in the long term pays off any upfront costs.

What To Do Next to Determine the Cost of Refinancing Mortgage Loans Like Yours

It may seem like an overwhelming process but don’t worry. Knowledge is power, and you’ve just increased your refinancing know-how by a lot. Here are some next steps to help guide you:

  1. Get your finances in order. That means knowing your credit score and having your W2s, pay stubs, and tax returns handy. 
  2. Determine your mortgage goals. Are you trying to lower your interest rate, shorten your term, or consolidate debt? These answers will help guide you to the right refinance solution.
  3. Choose your mortgage expert. Ask friends and family for referrals. Research online reviews. Get on the phone and interview lenders. Finding someone with whom you have a connection and trust is key.
  4. Evaluate your options. After checking out your credit, income, and home value, your chosen lender will provide you with a loan estimate.
  5. Get ready for closing. We can send a notary to your home or wherever you’re comfortable signing to finalize the loan, and in three days, you’ll receive the funds. 

Moreira can guide you through the process of refinancing your first home. Request a quote today and start exploring your refinancing options with a partner you can count on.