This week was a big week for mortgage rates. Did you know that rates haven't been this low on a conventional, 30 year fixed, since May of 2013?
The bigger news this week was for homeowners with 30 year FHA loans. Beginning next week, January 26th, the insurance premium charged for loans with less than 20% down is being dramatically reduced. However, in order to take advantage of the reduction you must refinance. New FHA home buyers will need to talk to their lender and ensure their case number will file with the new lower premiums.
Before you refinance your FHA loan you should consider the current value of your home. Depending on when you purchased the home, you may be better off refinancing to a conventional, with no mortgage insurance. FHA no longer drops the premium even though you may have 20% equity in the property. Therefore, in order to stop paying for insurance, you will need to refinance your FHA loan to a conventional at some point.
So how do you know if you should refinance?
- Rate reduction of at least 1%
- You will be able to drop mortgage insurance (20% equity via appraisal).
- You have an FHA loan and will reduce your insurance premium (savings est. $1,000 annually).
- If you have an ARM and think you will now be in the house for a longer period than you expected.
When should you not refinance?
- You are planning on selling the home in the next 12 to 24 months. This most likely won't be enough time to recoup the closing costs from any reduction (even zero down re-fi's take from your equity).
- You are in the last few years of your loan. You are already primarily paying principal at this point.
As a Realtor, and a former mortgage underwriter, I can answer questions you may have about your mortgage. Not sure if your home has gained enough value to drop your mortgage insurance? Send me an email and I can send you an analysis.
If you are considering buying or selling a home, please keep me in mind. Let me put my experience and knowledge to work for you. I love referrals!
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