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When FHA Streamline Makes Sense for Mortgage Refinancing

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One of the more frequently asked questions I get revolves around the timing of low cost FHA mortgage refinancing by way of the “streamline” program.  Borrowers want to know how to time FHA mortgage refinancing under the streamline program.  The first question I ask them is, “Do you currently have a FHA mortgage.”  If they say no, then I remind them that FHA streamlines are for homeowners who already have a FHA home loan.  If they say yes, then I ask them, “Are you seeking cash back in the refinance loan?” If they say yes, then I remind them that streamline loans are only for rate and term refinancing, meaning, no cash out is allowed.”

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The best time to streamline refinance your FHA mortgage is when you are saving a significant amount of money each month without adding on additional years with the new loan terms.  As far a percentage goes, (ie if you can reduce your rate by 1%) I tend to stay away from that type of a rule, because it depends on what type of mortgage you have (ie. Fixed or adjustable rate) and how big your loan amount is.  For example, a borrower reducing their rate half a percentage point on a $500,000 mortgage will actually save more money a month than a borrower who reduces their rate by 2 percentage points on a $100,000 loan because the loan amount is so much greater.  FHA streamline refinance loans were developed in an effort to automate the refinance process for good FHA customers and reward them with a low cost FHA mortgage at a very low interest rate. 

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2 Comments

1

The problem many FHA borrowers have found in 2012 is that when they refinance with FHA they will be forced to pay the adjusted mortgage premium rate which raises the amount they pay monthly for mortgage insurance. Since defaults have mounted and reserves have been depleted, the Federal Housing Administration has been forced to increase mortgage insurance premiums several times in the last few years.

So even though rates have fallen to all-time lows, in some cases FHA borrowers would not actually be reducing their housing expenses. Even though the borrower would be lowering their principal and interest payment through the streamline loan, they would be increasing how much they pay FHA for insurance on their home loan. FHA has hinted several times that they will hike insurance premiums again on new FHA transactions going forward in 2013 and this will erase potential saving benefits for many streamline refinance prospects.

2

The Federal Housing Administration requires borrowers to save at least 5% on a streamline refinance compared to their previous payment. Every time FHA raises premiums they shrink the pool of borrowers that would benefit from refinancing.

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