USDA Refinance Mortgage Insurance

As of December 7, 2011 USDA is now charging 1.5% up front and .3% annually as monthly mortgage insurance for all USDA Refinances.

Frankly this is not great news for anyone considering refinancing their USDA loan.  With interest rates as low as they are today it means many can still gain a huge benefit from refinancing their USDA Loan. There are several factors when considering a USDA Refinance but lets clear up a few guidelines first

1. You must already be in a USDA Mortgage, you cant refinance into one
2. You must refinance into another 30 year mortgage. USDA does not offer 15, 20 or ARM's
3. Your house must appraise for the new amount including any closing costs you wish to roll in
4. You must still qualify under the USDA Guidelines including not making over the USDA income limits for your area
5. You dont have any recent late payments or are behind on your current mortgage

In order to determine if you should refinance you should talk to a USDA specialist so lets consider the following.

1. If you obtained your USDA Loan previous to October 1, 2011 you probably added 3.5% to your total loan amount and your house must appraise for at least the amount you currently owe.
2. Your new loan will have an additional 1.5% plus monthly mortgage insurance (.3% annually)
3. Closing costs are typically around $5,000
4. Your current interest rate vs what current rates are today

Lets look at a typical scenario we might see today and look at the numbers.

• $250,000 - Current total loan amount
• $1,469.15 Current monthly payment
• 5.5% - Current interest rate on existing USDA loan
• 2009 Original loan started
• $5,000 Total Closing Costs
• 3.875% Interest rate at time of refinance

Okay we take the current loan of $250,000 + 1.5% up front MI = $253,750 + $5,000 closing costs = $258,750 Now we take the new loan amount of $258,750 and add the .3% annual mortgage insurance to the 30 year fixed rate at 3.875 and your new payment is $1,281.43

Old Payment $1,469.15 / New Payment $1,281.43

Savings = 187.72 per month = $2,252.64 annually

Years until you are making money back on your refinance = 3.88 years

Of course people refinance for many different reasons and there is no simple formula that covers every scenario. The above scenario would save someone almost $70,000 over 30 years.

Unfortunately you can not take any cash out on a USDA Loan and you can not shorten the term of the loan due to the fact that there is only a 30 year fixed rate loan option. If you are considering a refinancing your USDA loan make sure you speak with someone who knows all the ins and outs of this uncommon mortgage loan.