This depends on when you took out your FHA Mortgage. If the FHA Loan you’re thinking about refinancing was taken out June 1, 2009 or before, you have a substantial benefit to refinance with much lower monthly mortgage insurance payment coupled with significantly lower rates, providing a dramatic monthly savings. On the other hand if you took out your loan any time after June 1, 2009 that doesn’t necessarily mean an FHA streamline refinance wouldn’t make sense, but there are some things to be mindful of.
What consumers need to know about FHA Streamline Refinance Loans
The Federal Housing Administration up until 2012 has been the main vehicle for consumers looking for more relaxed residential mortgage loan financing. The FHA has also taken significant financial losses in recent years and to make up for those losses, the FHA has bolstered its capital reserve requirement, capital reserve requirement being the minimum standard in reserves (assets) as mandated by the Federal Housing Finance Agency. The FHA has bolstered its reserves and continues to do so by periodically increasing its mortgage insurance premiums paid on FHA Mortgages on to consumers. In other words, consumers are now paying more for their FHA Mortgages than they were in 2009, substantially more. The effect has been a smaller net tangible benefit incurred by refinancing from an FHA Mortgage to an FHA Mortgage via a streamline refi.
The mortgage insurance premiums set forth by HUD on FHA insured loans have risen causing borrowers to have to obtain a substantially lower interest rate just to offset the higher mortgage insurance, and have a smaller monthly mortgage payment. As recently as in the last six months, the prospectus to refinance FHA Mortgages into new FHA Streamline Loans have been very difficult as the premiums charged have eroded the monthly savings otherwise incurred by restructuring the debt.
Who benefits from an FHA Streamline Refinance today?
Homeowners whose current loans are 4.875% or higher and loan amounts greater than $200,000 all benefit. The overwhelming majority of people would stand to benefit by moving into a Conventional Loan rather than an FHA Streamline loan because the mortgage insurance premiums are automatically lower coupled with the lower rate. Additionally, moving into a Conventional Loan would allow a homeowner to get out of mortgage insurance faster than the five-year requirements set forth by the FHA and HUD. In some cases borrowers who purchased in 2009, 2010, or even as late as 2011, have amassed the 20% equity and they wouldn’t even know it, potentially allowing them to get out of mortgage insurance and just have a monthly principal and interest payment.
Running The Numbers
Compare an FHA streamline refinance mortgage to a conventional refinance and see what makes the most sense.