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By refinancing out of a 30-year mortgage and into a 15-year loan, a borrower may be eligible for lower interest rates. More of the principal loan balance is then paid every time they make a payment. This saves money over the lifetime of the loan, and that lifetime is considerably shorter.

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October 23, 2019
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FHA Loan Articles

News and Updates for Homeowners

FHA 15-Year Mortgage Refinance Options

FHA 15-Year Mortgage Refinance Options
May 24, 2019 - FHA home loans come in 15-year and 30-year options. Borrowers who have financial goals of saving more in the short term and having an overall lower mortgage payment choose the FHA 30-year loan option, but those who don’t mind paying a higher mortgage each month in exchange for a much faster payoff go for the 15-year version of the FHA mortgage.

But those who get into a 30-year mortgage still have the option to refinance into a 15-year FHA loan at another point.

By refinancing out of a 30-year mortgage and into a 15-year loan, the borrower may be eligible for lower interest rates, which means that more of the principal loan balance is paid every time you send in your mortgage check. This saves money over the lifetime of the loan, and that lifetime is considerably shorter.

But refinancing into a 15-year loan means taking into account the higher mortgage payment required and not just for the obvious reason of having to make more room in a budget. What about the add-ons to the loan you may be tempted to include?

Such add-ons can take the form of financed improvements offered in the FHA Energy Efficient Mortgage (FHA EEM) package. An FHA EEM allows more money to be added to a purchase loan or refinance loan to be used for approved energy-saving upgrades such as solar-powered features, storm windows and doors, etc.

But the add-ons increase the amount of your monthly mortgage payment; in the same way that financing the Up Front Mortgage Insurance Premium adds to your monthly payment, other add-ons do too.

So borrowers tempted to use a 15-year FHA loan instead of a 30-year mortgage will need to do the math on how much they will pay with and without the add-ons. If the monthly cost is too much, other options may need to be considered.

A 15-year FHA loan may be applied for as an adjustable rate mortgage as well as a fixed-rate note. If you are contemplating the adjustable rate mortgage in a 15-year loan you will first need to determine if there is an FHA lender willing to offer you such a package; not all FHA loan options are available from all participating lenders.

An adjustable rate mortgage is not something to be taken lightly; while it’s true that the FHA does limit the times and amounts of the rate adjustments, those adjustments will still affect your bottom line in the form of your monthly payment and how much the loan will cost you over time.

It’s best to have a conversation with a participating FHA lender to see what may be possible and recommended for you based on your financial needs, your long-term goals, and your ability to pay based on both the 30-year and 15-year options. Compare the numbers and make the most informed decision you can; you’ll be glad you took the extra time to review these options.

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