With increased FHA upfront fees, FHA Streamline Refinancing may not work unless the interest rate drop is significant.

Q: I read your Real Estate 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 loan, 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 mortgage.

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 principal 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 broker or mortgage lender.

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.