Anyone who has purchased a home in Sonoma County with an FHA Loan has probably thought about refinancing with today’s incredibly low mortgage rates. One of the main advantages of refinancing under the FHA is the ability to take part in their Streamline Refinance Program.
In a nutshell, the program allows those who have a present FHA Insured Loan to refinance to a new FHA Loan in exchange for a lower interest rate and subsequent lower payment without needing a home appraisal.
Well that’s changed…….slightly.
The mortgage insurance premiums paid in accordance with FHA Mortgage Financing have nearly doubled in the last year and a half eroding the savings otherwise incurred by the reduction in the rate. Put another way, the Federal Housing Administration’s mortgage insurance premiums offset the benefits of refinancing for a lower payment.
While you’re able to secure a lower rate of interest, your mortgage payment will actually be higher.
Presently, all FHA Loans contain two forms of mortgage insurance, an upfront mortgage insurance premium based on 1.75% points of the loan amount and a monthly premium at 1.25% of the loan amount.
Rewind the clock a few years, the older premiums were much lower, 1.75 % upfront and a payment factor .55%, respectively. As the premiums have risen, the pressure to grind the interest rate down becomes of paramount importance to make the net tangible benefit justifiable e.g. going from 4.75% to 3.25% on a 30 yr fixed on loans $300,000 and above.
Who can take advantage of FHA Streamline Refinances then?
Two groups of people-Two opportunities
Homeowners whose FHA Loans were originated June 1, 2009 or before, as the monthly premiums for these transaction only require an upfront premium of .01% and a monthly premium of .55%. This was introduced in March of 2012 to benefit those who have not previously refinanced.
Homeowners who’s FHA Loans were taken out after June 1, 2009 would stand to benefit by refinancing into a conventional loan with a subsequent lower intereste rate AND lower mortgage insurance requirements.
That’s right, refinance out of the FHA Loan instead.
A conventional loan with less than 20% equity has an average mortgage insurance of only 75 basis points, that’s it, thereby making this loan a lower cost mortgage than its FHA counterpart.
So let me get this straight, if I refinance my FHA Loan on the FHA Streamline Refinance Program, I can get a lower interest rate, but my monthly mortgage payment will be higher and if I refinance with a conventional loan my mortgage payment will be lower because monthly pmi is lower?
Yup, that about sums it up.
If you have an interest rate on your current FHA Mortgage at anything over 4%, it’s in your best interest to at least explore the possibility of refinancing. There is a good probability you could refinance into a conventional loan and save significantly more money all while getting an interest rate in the mid-threes on a 30 year fixed rate. If you’d like to get a mortgage rate quote for your unique situation, we’ll provide you a complementary no obligation quote.