I bought my first home in 2018 with a 615 credit score. My mortgage rate was 5.75% on a 30-year FHA loan, with a 3.5% down payment. The house cost $180k, and now it’s worth around $285k. I still owe about $150k on the loan.
In 2021, I didn’t refinance when rates were historically low. I mistakenly thought it would hurt my equity and didn’t want to deal with appraisals or closing costs. Now, I’m kicking myself for not taking advantage of those rates.
If I had refinanced from 5.75% to something like 2.65%, would it have positively affected my equity or just lowered my payments? I’m trying to understand what I missed out on and how to make better financial decisions if similar opportunities come up in the future.
Don’t dwell on the past. At least your 5.75% rate is still better than what many can get today.
Refinancing wouldn’t have affected your equity, aside from adding the refinance costs to the loan. Those costs are typically small for a $150k balance.
Appreciate the equity you’ve built. That’s a big reason why people buy homes.
With low credit and little equity, 2.65% might have been out of reach. Maybe you could’ve gotten 4%, which would’ve helped, but the difference on a $150k loan wouldn’t be huge.
Enjoy your manageable payments and growing equity. You’re in a good spot!
You borrowed $173,700 in 2018 at 5.75%, with about $1000 in monthly principal and interest. Over 30 years, you’d pay around $185,000 in interest.
By 2021, your balance would’ve been roughly $165,000, and you’d have paid $25k in interest. Refinancing that balance to 2.65% would’ve dropped your monthly payment to $675 and total interest to $80,000. Combined with the $25k you’d already paid, you’d save $80k in interest over the life of the loan.
You wouldn’t have lost equity; refinancing doesn’t do that.
You’d have saved over $100k in interest over the loan’s life.
The only cost would’ve been closing fees (around $3k–$4k), but those could’ve been added to the loan. The rising value of your home would’ve made it easier to get approved.
An FHA streamline in 2021 could’ve brought your rate below 2.5%. Your payment would’ve dropped, and you could’ve built equity faster by paying the same as before but directing the extra toward the principal. Don’t beat yourself up about it—learn from it and look ahead.
Don’t drive yourself crazy thinking about the past. Plenty of people missed out on things like Bitcoin or Tesla stocks too. You’re in a better spot than many people now.
You’d have more equity now since a larger portion of your payment would’ve gone toward the principal with a lower rate. Maybe a couple thousand dollars more by now.
Your rate might be higher than 2021 levels, but it’s still better than what’s available today for many borrowers. You might want to explore refinancing into a conventional loan to remove MIP. Just be sure to find a good loan officer who can guide you through the math and options.
Thank you all for your advice! I’m lucky to have a home, and I hope rates drop to help others buy too. I’ll explore refinancing into a conventional loan to ditch MIP. Thanks again!