Refinancing land loans: How to save on interest costs

Land loans usually come with higher interest rates than home mortgages, which means the total cost of financing can add up quickly. One way to cut those costs is through refinancing. By replacing your current loan with a new one, you may be able to lower your interest rate, adjust your term, or restructure your repayment plan.

But refinancing isn’t always the right move. Let’s break down when it makes sense, how much you could save, and the tools that help you run the numbers.

---

What Does It Mean to Refinance a Land Loan?

Refinancing simply means swapping your existing loan for a new one, ideally with better terms. Borrowers refinance for reasons such as:

• Lowering the interest rate to save money over time
• Extending or shortening the loan term to match cash flow needs
• Switching from variable to fixed rates for predictability
• Rolling out of balloon or interest-only structures into standard repayment

---

How Refinancing Saves on Interest

Even a small change in interest rate can lead to big savings.

Example:

• Current loan: $150,000 at 9% for 15 years → ~$1,521/month
• Refinance: $150,000 at 7% for 15 years → ~$1,348/month
• Monthly savings: $173
• Lifetime savings: More than $31,000 over the loan term

👉 Try your own scenario using the land loan refinance calculator.

---

When Does Refinancing Make Sense?

Refinancing is worth exploring if:

• Rates have dropped since you closed your loan
• Your credit profile has improved, making you eligible for lower rates
• You plan to hold the land long enough to recover refinancing costs
• You want to switch out of a balloon or interest-only structure

If you’re near the end of your loan term, the potential savings may not outweigh the upfront costs.

---

Costs and Factors to Consider

Before refinancing, weigh these factors carefully:

• Closing costs and lender fees – Application, appraisal, and processing charges may apply
• Loan term impact – Extending the term lowers payments but could increase total interest
• Prepayment penalties – Some land loans charge fees for early payoff
• Equity position – The more equity you have, the better the terms you may qualify for

---

Alternatives to Refinancing

If refinancing doesn’t fit, there are other ways to save:

• Make extra principal payments to reduce interest faster
• Change your repayment structure (e.g., biweekly payments) to chip away at balance
• Negotiate with your current lender for a rate adjustment

👉 To see how faster payoff compares, try the land loan early payoff calculator.

---

FAQs: Refinancing Land Loans

Can I refinance raw land loans?
Yes, but raw land is riskier for lenders, so rates may still be higher than improved property.

What’s the break-even point for refinancing?
It’s the time it takes for your monthly savings to outweigh the upfront costs of refinancing.

Does refinancing always lower monthly payments?
Not always—shortening your term may raise monthly payments but still save interest long-term.

Can refinancing help with balloon loans?
Yes, many borrowers refinance before a balloon payment comes due.