Fha to Conventional Refinance Calculator

Estimate your savings and understand the benefits of switching from an FHA loan to a conventional mortgage.

Loan Amortization Comparison (First 5 Years)

Year	FHA Loan Balance	Conventional Loan Balance	Total Interest Paid (FHA)	Total Interest Paid (Conventional)

What is an FHA to Conventional Refinance?

An FHA to conventional refinance is a mortgage refinancing process where a homeowner with an FHA-insured loan transitions to a conventional mortgage. FHA loans are government-backed mortgages designed to help borrowers with lower credit scores or smaller down payments achieve homeownership. Conventional loans, on the other hand, are not backed by the government and typically have stricter qualification requirements, often favoring borrowers with higher credit scores and more substantial down payments. Refinancing from FHA to conventional can be a strategic financial move for homeowners who have improved their creditworthiness, built significant equity, or wish to eliminate FHA-specific mortgage insurance premiums (MIP).

Who should consider this refinance?

• Homeowners whose credit scores have significantly improved since obtaining their FHA loan.
• Borrowers who have built substantial equity in their home, reducing their loan-to-value (LTV) ratio.
• Individuals looking to eliminate the FHA's upfront and annual mortgage insurance premiums (UFMIP and MIP), which can be costly.
• Those who no longer want the restrictions or specific requirements associated with FHA loans.

Common Misconceptions:

• Myth: You can never refinance out of an FHA loan. Reality: While it requires meeting conventional loan criteria, refinancing is absolutely possible.
• Myth: It's always cheaper to stay with an FHA loan. Reality: For many borrowers who have improved their financial profile, a conventional loan can offer lower interest rates and eliminate MIP, leading to significant savings.
• Myth: Refinancing always involves high closing costs. Reality: While there are costs, the long-term savings from a lower rate or eliminated MIP often outweigh these fees. Some refinances may even offer limited closing costs.

FHA to Conventional Refinance Formula and Mathematical Explanation

The core of evaluating an FHA to conventional refinance lies in comparing the total monthly housing costs and the long-term interest paid. The primary goal is to determine if the savings from a lower interest rate and the elimination of FHA MIP outweigh the costs associated with the refinance and any potential increase in conventional Private Mortgage Insurance (PMI).

Calculating Monthly Housing Costs

First, we need to calculate the Principal and Interest (P&I) payment for both the current FHA loan and the proposed conventional loan. The standard formula for a fixed-rate mortgage payment (M) is:

M = P [ i(1 + i)^n ] / [ (1 + i)^n – 1]

Where:

• M = Monthly Payment (P&I)
• P = Principal Loan Amount
• i = Monthly Interest Rate (Annual Rate / 12)
• n = Total Number of Payments (Loan Term in Years * 12)

The total monthly housing cost for each loan type includes P&I plus mortgage insurance:

• Current FHA Monthly Cost = FHA P&I + FHA Monthly MIP
• New Conventional Monthly Cost = Conventional P&I + Conventional Monthly PMI (if applicable)

Calculating Monthly Savings

The immediate monthly savings are calculated by comparing the total monthly costs:

Immediate Monthly Savings = Current FHA Monthly Cost - New Conventional Monthly Cost

Accounting for Refinance Fees

Refinancing involves closing costs. To get a true picture of savings, these costs should be factored in. A common method is to amortize the fees over the term of the new loan:

Monthly Cost of Fees = Total Refinance Fees / (New Conventional Loan Term in Years * 12)

Net Monthly Savings

The net monthly savings, which reflects the true ongoing benefit, is:

Net Monthly Savings = Immediate Monthly Savings - Monthly Cost of Fees

Calculating Total Interest Savings

To assess long-term benefits, we compare the total interest paid over the life of each loan. This requires calculating the total payments made and subtracting the principal borrowed.

Total Interest Paid = (Monthly P&I * Number of Payments) - Principal Loan Amount

Total Interest Savings = Total Interest Paid (FHA) - Total Interest Paid (Conventional)

Note: This calculation often compares the interest paid over the *remaining* term of the FHA loan versus the *full* term of the new conventional loan, or a comparable timeframe.

Variables Table

Variables Used in Calculation

Variable	Meaning	Unit	Typical Range
P (Principal)	Outstanding loan balance or new loan amount	USD ($)	$50,000 – $1,000,000+
i (Monthly Interest Rate)	Annual interest rate divided by 12	Decimal (e.g., 0.0375 for 3.75%)	0.0208 (2.5%) – 0.0625 (6.25%) or higher
n (Number of Payments)	Loan term in months	Months	180 (15 yrs) – 360 (30 yrs)
FHA MIP	Monthly Mortgage Insurance Premium for FHA loan	USD ($)	$50 – $500+
Conventional PMI	Monthly Private Mortgage Insurance for conventional loan	USD ($)	$0 – $300+ (often $0 if LTV < 80%)
Refinance Fees	Costs associated with closing the new loan	USD ($)	$1,000 – $10,000+

Practical Examples (Real-World Use Cases)

Example 1: Significant Savings Potential

Scenario: Sarah has an FHA loan with a balance of $280,000 at 5.0% interest for 28 years remaining. Her monthly FHA MIP is $130. She has improved her credit score significantly and now qualifies for a conventional loan. She wants a 30-year conventional loan for $275,000 at 4.0% interest. Her estimated conventional PMI is $50/month, and refinance fees are $4,000.

Inputs:

• Current FHA Loan Balance: $280,000
• Current FHA Interest Rate: 5.0%
• Current FHA Loan Term: 28 years
• Desired Conventional Loan Balance: $275,000
• Target Conventional Interest Rate: 4.0%
• Desired Conventional Loan Term: 30 years
• Current FHA Monthly MIP: $130
• Estimated Conventional PMI: $50
• Estimated Refinance Fees: $4,000

Calculations:

• Current FHA P&I: ~$1,505
• Current FHA Total Monthly Cost: $1,505 + $130 = $1,635
• New Conventional P&I: ~$1,313
• New Conventional Total Monthly Cost: $1,313 + $50 = $1,363
• Immediate Monthly Savings: $1,635 – $1,363 = $272
• Monthly Cost of Fees: $4,000 / (30 * 12) = $11.11
• Net Monthly Savings: $272 – $11.11 = $260.89
• Total Interest Paid (FHA over 28 yrs): ~$143,400
• Total Interest Paid (Conventional over 30 yrs): ~$197,680 (Note: Longer term increases total interest, but monthly payment is lower)
• Estimated Total Interest Savings (comparing remaining FHA term vs. new loan term): This requires a more detailed amortization comparison. If comparing over the original 28 years, the savings would be substantial due to the lower rate. The calculator provides this detailed view.

Interpretation: Sarah can expect to save over $260 per month after accounting for fees. While the total interest paid over 30 years is higher than the remaining interest on the FHA loan, the significantly lower monthly payment and elimination of FHA MIP make this a beneficial FHA to conventional refinance, especially if she plans to move or pay down the loan faster.

Example 2: Breaking Even or Minor Savings

Scenario: John has an FHA loan balance of $150,000 at 4.8% interest with 20 years remaining. His FHA MIP is $90/month. He has moderate equity and a decent credit score. He's considering a conventional loan for $145,000 at 4.5% interest for 20 years. His estimated conventional PMI is $70/month, and refinance fees are $5,000.

Inputs:

• Current FHA Loan Balance: $150,000
• Current FHA Interest Rate: 4.8%
• Current FHA Loan Term: 20 years
• Desired Conventional Loan Balance: $145,000
• Target Conventional Interest Rate: 4.5%
• Desired Conventional Loan Term: 20 years
• Current FHA Monthly MIP: $90
• Estimated Conventional PMI: $70
• Estimated Refinance Fees: $5,000

Calculations:

• Current FHA P&I: ~$967
• Current FHA Total Monthly Cost: $967 + $90 = $1,057
• New Conventional P&I: ~$914
• New Conventional Total Monthly Cost: $914 + $70 = $984
• Immediate Monthly Savings: $1,057 – $984 = $73
• Monthly Cost of Fees: $5,000 / (20 * 12) = $20.83
• Net Monthly Savings: $73 – $20.83 = $52.17
• Total Interest Paid (FHA over 20 yrs): ~$82,080
• Total Interest Paid (Conventional over 20 yrs): ~$74,360
• Estimated Total Interest Savings: $82,080 – $74,360 = $7,720

Interpretation: John sees a modest net monthly saving of about $52. The total interest paid over the life of the loan is also lower. This FHA to conventional refinance might be worthwhile for the long-term interest savings and the elimination of FHA MIP, even if the immediate monthly cash flow improvement is small. He should weigh this against the closing costs and the effort involved.

How to Use This FHA to Conventional Refinance Calculator

Our calculator is designed to provide a clear comparison between your current FHA loan and a potential conventional refinance. Follow these steps:

1. Enter Current FHA Loan Details: Input your current FHA loan balance, interest rate, remaining term in years, and the monthly FHA MIP.
2. Enter Proposed Conventional Loan Details: Input the desired balance for your new conventional loan, the target interest rate, and the loan term in years.
3. Estimate Additional Costs: Enter the estimated total refinance fees (appraisal, title, origination, etc.) and your expected monthly PMI for the conventional loan (enter 0 if you expect PMI to be waived due to high equity).
4. Calculate Savings: Click the "Calculate Savings" button.

How to Read Results:

• Primary Result (Monthly Savings): This is your estimated net monthly savings after factoring in the amortized refinance fees. A positive number indicates monthly savings.
• Current Total Monthly Housing Cost: This includes your FHA P&I payment plus your FHA MIP.
• New Conventional Monthly Housing Cost: This includes the estimated conventional P&I payment plus any conventional PMI.
• Estimated Total Interest Savings: This shows the potential reduction in total interest paid over the life of the loan by switching to the conventional mortgage.
• Chart & Table: The chart visually compares monthly payments over time, and the table shows the amortization schedule, highlighting how quickly you build equity and the interest paid in the initial years.

Decision-Making Guidance:

• Significant Monthly Savings: If the calculator shows substantial net monthly savings, refinancing is likely a good idea.
• Positive Total Interest Savings: Even with modest monthly savings, a large amount of total interest saved over the loan term can make refinancing worthwhile.
• Elimination of FHA MIP: If your FHA MIP is high, switching to a conventional loan (especially with low or no PMI) can be beneficial even if the interest rate isn't dramatically lower.
• Loan Term Changes: Be mindful of extending your loan term. While it lowers monthly payments, it increases the total interest paid over time. Ensure the long-term savings justify this.
• Closing Costs: Consider the break-even point. Divide the total refinance fees by your net monthly savings to estimate how many months it will take for the savings to recoup the costs.

Key Factors That Affect FHA to Conventional Refinance Results

Several factors influence the outcome and potential benefits of an FHA to conventional refinance. Understanding these can help you make a more informed decision:

1. Credit Score Improvement: This is often the primary driver. A higher credit score unlocks access to lower interest rates on conventional loans, which is crucial for significant savings. Lenders typically require scores above 620, but better rates are usually found at 700+.
2. Home Equity (Loan-to-Value Ratio – LTV): Lenders assess your LTV. With an FHA loan, you might have started with low equity. As you pay down the loan and/or home values increase, your equity grows. Higher equity (lower LTV) generally leads to better conventional loan terms and can eliminate the need for PMI.
3. Interest Rates: The difference between your current FHA rate and the available conventional rate is paramount. A lower conventional rate directly reduces your P&I payment and the total interest paid over the loan's life.
4. Mortgage Insurance Premiums (MIP vs. PMI): FHA loans have MIP, which can be permanent for borrowers with less than 10% down. Conventional loans have PMI if the LTV is above 80%, but it can often be removed once equity reaches 20-22%. Eliminating FHA MIP is a major motivation for many refinances.
5. Refinance Closing Costs: These fees (appraisal, title insurance, origination fees, recording fees, etc.) add to the cost. High closing costs can negate monthly savings, especially in the short term. Calculate your break-even point carefully.
6. Loan Term and Payment Structure: Choosing a new loan term impacts both monthly payments and total interest paid. Extending the term lowers monthly payments but increases long-term interest costs. Staying with a shorter term or paying extra can maximize interest savings.
7. Market Conditions and Future Plans: Current mortgage rate trends and your long-term plans for the home (e.g., selling in 5 years vs. staying long-term) influence the decision. Refinancing makes more sense if you plan to stay in the home long enough to recoup closing costs and benefit from lower payments/interest.
8. Appraisal Value: The appraised value of your home determines the LTV for the new conventional loan. A higher appraisal can improve your LTV, potentially leading to better terms or eliminating PMI.

Frequently Asked Questions (FAQ)

Q1: How long does it take to refinance from FHA to conventional?

A: The process typically takes 30-60 days, similar to a standard mortgage application and refinance. It involves a new loan application, underwriting, appraisal, and closing.

Q2: What are the typical closing costs for an FHA to conventional refinance?

A: Costs can range from 2% to 5% of the loan amount, including appraisal fees, title insurance, lender origination fees, credit report fees, and recording fees. Some lenders offer "no-cost" refinances where fees are rolled into the loan balance or covered by a slightly higher interest rate.

Q3: Can I do a "cash-out" refinance from FHA to conventional?

A: Yes, you can often do a cash-out refinance. However, the amount you can borrow depends on your equity and the lender's LTV limits for conventional loans, which might be stricter than FHA limits.

Q4: What happens to my FHA Upfront Mortgage Insurance Premium (UFMIP)?

A: The UFMIP paid on your original FHA loan is non-refundable and is not recovered during a refinance. You are essentially starting fresh with a new loan and its associated costs.

Q5: My credit score has improved. How much lower does my rate need to be to make refinancing worthwhile?

A: A common rule of thumb is that a rate reduction of 0.5% to 1.0% or more can make refinancing worthwhile, especially when combined with eliminating FHA MIP. Use the calculator to determine your specific break-even point based on fees and savings.

Q6: What if my home value has decreased? Can I still refinance?

A: If your home value has decreased, your LTV might be too high for a conventional loan, or you might face higher PMI rates. You may need to wait for home values to rise or pay down more principal.

Q7: Is it better to refinance to a 15-year or 30-year conventional loan?

A: A 15-year loan typically has a lower interest rate and saves significantly more interest over time, but has higher monthly payments. A 30-year loan has lower monthly payments, making it more affordable month-to-month, but costs more in total interest. The best choice depends on your financial goals and cash flow needs.

Q8: What are the main advantages of switching from FHA to conventional?

A: The primary advantages are potentially lower interest rates, elimination of FHA MIP (which can be permanent), access to a wider range of loan products, and potentially higher loan limits. This FHA to conventional refinance can lead to significant long-term savings.