While it’s not getting the kind of attention you might expect, some 3.4 million American homeowners have the opportunity to share in more than an estimated $10 billion in savings on their mortgage payments. The Federal Housing Administration (FHA) recently announced changes to the fees that it will charge on its FHA Streamline Refinance program for some existing borrowers. The savings begin on June 11, so the time is right to find out if you qualify.
Who is eligible?
Eligibility for the FHA Streamline Refinance program with the discounted fees depends on the answers to the following questions:
1. Do you have an FHA single-family home mortgage loan?
2. Was your current loan endorsed (accepted) by the FHA on or before May 31, 2009?
3. Are your payments current on your existing loan (no late payments for 12 months)?
If you can answer yes to those three questions then you qualify for the savings.
What are the potential savings?
The potential rate savings alone is meaningful for most borrowers. Nearly 3.4 million Americans meet the eligibility requirements for this program and have a rate of five percent or greater. With current FHA mortgage rates near 3.5 percent, the monthly payment savings from refinancing could be significant. For a $200,000 loan the savings would be close to $175 per month.
The FHA charges an upfront fee known as a Mortgage Insurance Premium (MIP) on all of the loans it insures. Prior to April 1, 2012 this fee was equal to one percent of the loan amount. However, the MIP increased to 1.75 percent on that date. This increased fee presents a significant cost increase to obtain an FHA insured mortgage and actually provided a disincentive to existing FHA borrowers to refinance into a lower rate FHA loan. Realizing this fact, the FHA is reducing, beginning June 11, 2012, its upfront MIP to .01 percent for borrowers that meet the eligibility requirements. For a $200,000 loan that works out to an upfront savings of almost $3,500!
Additionally, the FHA charges annual fees, paid monthly, for its mortgage insurance. Similarly, that fee was recently increased. The exact amount depends on the amount of the down payment you make. For the typical borrower making less than a five percent downpayment the new annual MIP fee will be 1.2 percent of the loan amount, paid in 12 monthly increments as part of the mortgage payment. For the eligible homeowners described above this fee is being cut to 0.55 percent. For a $200,000 loan the difference works out to $1,300 per year or better than $108 per month.
As if the potential to share in $10.2 billion in savings wasn’t enough there are other benefits of the FHA Streamline Refinance program that make it very appealing for eligible homeowners. As difficult as it may seem to believe this program does not require:
►Equity in the home
What? Someone’s got to be kidding right? Isn’t this the type of thing that got us into the housing crisis in the first place? Well, it is true that poor underwriting practices did contribute significantly to the housing crisis. However, the reason this program poses no new risk to taxpayers is that it dramatically improves the financial situation of millions of existing borrowers with FHA insured mortgages. The risk of providing new loans on the same homes, for the same dollar amount currently insured is offset by the improved cash-flow of the borrowers.
If you think you might be eligible for the discounted FHA Streamline Refinance program then it would be wise to contact a lender who can verify your eligibility. The truth for future mortgage borrowers in the US is that fees are going to be higher than they have been in the past. And, while mortgage rates are low now, the long term forecast is for much higher rates over the years to come. Consequently, if you are among the fortunate 3.4 million FHA borrowers, this may be the mortgage opportunity of your lifetime!
John Walsh is president of Total Mortgage Services LLC, an expanding mortgage banker. Walsh founded Total Mortgage Services in 1997 with a customer-centric approach and a mission of responsible lending. He may be reached by e-mail at [email protected]