With increased FHA upfront fees, FHA Streamline Refinancing may not work unless the interestInterest is money charged for the use of borrowed funds. Usually expressed as an interest rate, it is the percentage of the total loan charged annually for the use of the funds. rate drop is significant.
Q: I read your Real EstateReal Estate is land and anything permanently attached to it, such as buildings and improvements. Matters column in the Washington Post regarding FHA streamline refinancing. There is one glaring mistake. You wrote “if you have 25 years left to repay your loanA Loan is an amount of money that is lent to a borrower, who agrees to repay it plus interest., you’ll still have 25 years – you’ll just pay interest at a lower rate for those years.”
This is totally false, when a person does a streamline refi, the new loan is for whatever the new loan term is, which in most cases is a 30-year mortgageA Mortgage is a document granting a lien on a home in exchange for financing granted by a lender. The mortgage is the means by which the lender secures the loan and has the ability to foreclose on the home..
Speaking of the FHA streamline refinance, did you know that FHA requires that there must be a savings of 5 percent between the old and new loan? They not only count principalPrincipal is the amount of money you borrow if you're getting a home loan. If you're buying a bond, the principal is the amount you're lending. Typically, you'll buy bonds with a face value of ,000. If you buy a ,000 bond, your principal is ,000. and interest but also mortgage insurance into the equation.
Did you know the FHA changed the mortgage insurance requirements and now the annual insurance fee is 1.15 percent whereas before the annual fee was .55 percent for a long time? Consumers who are paying at the .55 percent rate would need to lower their interest rate substantially (2 to 3 percent) for the new loan to make sense.
When FHA changed the mortgage insurance structure they hurt many existing borrowers in their ability to streamline refinance.
A: Thank you for your comment and for clarifying the issue. You are correct that a streamline refinancing of an FHA would effectively give a borrower a new loan term. The borrower could choose a shorter term for his or her loan, but the monthly loan payment could not go up by much. There are various other rules that go into a streamline refinancing and for those reasons we always recommend that a borrower talk to a qualified mortgage brokerA Mortgage Broker is a company or individual that brings together lenders and borrowers and processes mortgage applications. or mortgage lenderA Lender is a person, company, corporation, or entity that lends money for the purchase of real estate..
In the specific article that you commented on, the borrower had an interest rate over 5 percent. He didn’t indicate how large of a loan he had, but given your information, he might not get a low enough rate to benefit from refinancing his FHA loan.
It would be prudent for this borrower to seek the assistance of a qualified FHA lender to go over not only the interest rate, but the costs involved in refinancing as well. Our story did indicate that the borrower would have to evaluate the costs involved before refinancing to see if it was worth it.
Given your information, his loan payment might go down but the length of his loan would increase by five years. If his monthly payment savings aren’t high enough, the borrower shouldn’t move forward with the refinancing.