You Can Wait, But Don't Shoot The Messenger

My post: FHA Mortgage Insurance Increase...Have You Refinanced Yet? seems to have driven the point home that now is the time. Remember, lenders will be compensated differently after April 1st, 2011, than they are now and word is that we will lose flexibility in pricing. No flexibility, higher rates. Period.

I wrote a post last week, FHA To Increase Mortgage Insurance Premiums, and I mainly focused on the effect that the increased annual FHA mortgage insurance premium (paid monthly) will have on a buyer's housing expense for FHA case numbers assigned on or after April 18, 2011.

For a purchase price of $200,000 the increase will be about $40 per month. For a purchase price of $400,000 the increase will be about $80 per month. For a purchase price of $600,000 the increase will be about $120 per month.

Regardless of interest rates, people will always purchase homes. Maybe not as many homes, maybe not as expensive, but purchases will happen. However, the FHA Mortgage Insurance Premium (MIP) increase could have a pretty significant effect on the refinance market.

Last fall, the MIP increase from 0.55% to 0.90% dried up some of the refinances, but not all of them, mainly because FHA lowered the Upfront Mortgage Insurance Premium (UFMIP) from 2.25% of the base loan amount to 1.0%. This UFMIP is most often financed into the loan.

Rates were also at their lowest in years, so an increase in the MIP was not that big of a deal if a refinance client was getting a 30 year fixed of 4.00%. Fast forward to today: rates are now hovering between the upper 4's and the lower 5's which narrows the refi window. Add an extra $80 per month in additional mortgage insurance and the refi window essentially shuts for many homeowners with FHA mortgages.

If you or one of your clients has an FHA insured mortgage, have considered refinancing, and would be able to recoup the costs (if any) in a reasonable time, now might be your window. It will shut April 18th.