In perhaps the first positive news we have received in some time in regard to FHA mortgage insurance, HUD recently announced changes to reduce mortgage insurance costs on certain FHA Streamline refinance transactions. Let’s take a look at what an FHA streamline refinance actually is and what the changes will mean for the program.
Currently, when a homeowner who has an FHA mortgage wants to refinance their home, they can take advantage of the FHA streamline refinance. This is an excellent refinance option for homeowners in today’s market as appraisals are almost always not necessary on FHA streamline refinances and income and credit documentation requirements are also greatly reduced.
However, currently when you complete a streamline refinance, there is a 1% upfront MIP charge (which is pro-rated if you took out your current loan in the last 36 months) and the annual mortgage insurance charges for the loan are based on current market FHA mortgage insurance premiums.
The issue in recent years for homeowners who want to refinance with an FHA streamline refinance, is that as interest rates have been declining, FHA mortgage insurance premiums have been steadily increasing. So, the benefit of refinancing to a lower interest rate has been mitigated by these rising premiums.
Currently those numbers equate to annual mortgage insurance premiums of 115 basis points for 30 year fixed loans with a loan to value of above 95% and 110 basis points at below 95% loan to value. And as we have recently written about, those numbers are soon to go up yet again to 125 basis points and 120 basis points respectively for the above two scenarios.
However, starting June 11, 2012 for FHA home loans that were originated on or before May 31, 2009, there will be reduced upfront and annual mortgage insurance premiums for borrowers refinancing through an FHA streamline refinance. The upfront mortgage insurance cost will be reduced from 100 basis points to just 1 basis point. And the annual mortgage insurance for 30 year fixed mortgages will be reduced to 55 basis points.
To illustrate the type of savings this will equate to, let’s take a look at a hypothetical example of a current homeowner with a $200,000 FHA insured mortgage. Under the current FHA streamline refinance program that homeowner would be required to pay a $2,000 upfront FHA mortgage insurance fee and then a monthly mortgage insurance payment in the amount of $208.33. However, under the new FHA streamline refinance program that will soon be available those numbers drop to $20 for the upfront mortgage insurance premium and then $91.67 for monthly mortgage insurance. This would be an initial savings of $1,980 for homeowners at the closing of their loans and then roughly $1,400 on annual basis in mortgage insurance.
In the end, this program does obviously not apply to all homeowners with FHA mortgages, but for homeowners who have an FHA mortgage they took out before June 2009, the new FHA refinance program can equate to a tremendous savings. The program does not become available until June 11th, but if you believe you qualify for it, don’t hesitate to contact a licensed lender, such as Strategic Mortgage now. It is best to make sure you have everything in line ahead of time, to lock in a low interest rate when the program arrives.
For more information on home purchase loan or refinance programs for existing and potential home owners, please contact Bill Kamboukos of Strategic Mortgage at (480) 219-3682 or by emailing: info@strategicmtgaz.com or online at www.strategicmtgaz.com
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