“We almost didn’t bother.”
That’s what Rachel told me when I asked why she waited three years to refinance. She and her husband Mike bought their home in 2019 with a 30-year FHA loan at 4.25%. They had a decent rate. Not great. Not terrible. They assumed refinancing was for people with “bad” loans.
Then, in early 2026, a friend mentioned that rates had dropped. Not to 2.8%, but from 7.2% down to around 6.4%. Mike shrugged. “It’s still higher than our 4.25%,” he said. “Why would we refinance?”
That’s the trap. People compare the new rate to their old rate, see that it’s higher, and stop. But Rachel and Mike had another problem: their mortgage included monthly mortgage insurance (PMI equivalent for FHA) of $210. That’s $2,520 a year, gone forever.
Here’s the mistake they almost made—and the $15,000 they saved by running the numbers anyway.
Here’s the detail that changes everything: FHA loans require mortgage insurance for the life of the loan if you put down less than 10%. Rachel and Mike put down 5%. They’d been paying $210 a month for five years. That’s $12,600 already down the drain. They had 25 years left, which meant another $63,000 in future MIP payments if they stayed.
When I showed them that number, Mike’s jaw dropped. “Sixty‑three thousand dollars just for insurance?”
“Yes. And you can eliminate it completely by refinancing into a conventional loan, as long as your home value has increased enough to give you 20% equity.”
We checked Zillow and recent comps. Their home had appreciated from $350,000 to $480,000. Their remaining balance was $280,000. That’s 58% LTV. They had more than 20% equity. They could drop PMI entirely.
“But the new rate would be 6.2%,” Rachel said. “That’s higher than our 4.25%.”
I nodded. “Let’s do the math.”
Current loan: $280,000 at 4.25% with 25 years left. Payment: about $1,520 (principal and interest) plus $210 MIP = $1,730 total. Total future interest (25 years): about $176,000. Plus MIP: $63,000. Total future cost: $239,000.
New loan: $280,000 at 6.2% for 30 years (they wanted a lower payment). Payment: about $1,715. No MIP. Total interest over 30 years: about $337,000. That’s way higher. Not good.
Mike shook his head. “See? I told you.”
“Hold on,” I said. “That’s the wrong term. You don’t need 30 years. You’ve already paid for five. Try a 20‑year term.”
20‑year fixed at 6.0% (slightly lower than 30‑year). Payment: about $2,005. That’s $275 more per month than their current total payment. But total interest over 20 years: about $201,000. No MIP. Total future cost: $201,000, compared to $239,000 on their current path. That’s $38,000 less interest paid, plus they own the home five years earlier.
Rachel’s eyes lit up. “So we pay $275 more a month now, but we save $38,000 overall and we’re done five years sooner?”
“Exactly.”
But they couldn’t afford $275 extra per month. Their budget was tight. So we looked at a 25‑year term (uncommon, but some lenders offer it). 25‑year fixed at 6.1%. Payment: about $1,820. That’s only $90 more per month than their current payment. Total interest over 25 years: about $264,000. No MIP. Compared to their current future cost of $239,000 (including MIP), it’s $25,000 more. Not a win.
Mike was getting frustrated. “So there’s no good option?”
Then I remembered: they had $40,000 in high‑interest credit card debt. We hadn’t factored that in. If we did a cash‑out refinance that paid off the credit cards, the math changed completely.
We ran a cash‑out refi: new loan $320,000 (old balance $280,000 + $40,000 credit cards + $5,000 closing costs). 20‑year fixed at 6.1%. Payment: about $2,310. That’s $580 more per month than their old payment. But they’d be eliminating $40,000 in credit card debt at 22% interest, which cost them about $730 a month in minimum payments.
Net monthly change: -$580 (higher mortgage) + $730 (credit card savings) = +$150 per month freed up. And they’d own the home in 20 years instead of 25. Over the life of the loan, they’d save roughly $15,000 in total interest compared to their old mortgage plus credit cards.
Rachel almost cried. “We nearly didn’t bother. I can’t believe we almost missed this.”
They closed the cash‑out refi on June 28, 2026. Their new payment is $2,310, but they have no credit card payments. They’re putting the extra $150 a month into their kids’ college fund.
The lesson? Never assume that a higher rate means a worse loan. Run the numbers. Include PMI or MIP. Consider credit card consolidation. And always, always check your equity.
I will keep posting updates on this. Check back soon.
P.S. Rachel texted me yesterday: “Our credit card balances are zero for the first time in eight years. I keep logging into the app just to stare at it.” That’s the feeling.
This article is for informational purposes. FHA MIP rules and conventional loan guidelines vary. Consult a lender for your specific situation.
Michael Harrington