Minneapolis, MN: For certain FHA loan backed homeowners, refinancing via the FHA Streamline Refinance program is about to get a lot less expensive. Beginning June 11, 2012, FHA implements a new policy for its mortgage insurance rates.
FHA mortgage rates have been steadily falling. Unfortunately, the FHA mortgage insurance rates have not. Today’s FHA homeowners pay up to 1.25% in annual mortgage insurance premiums — triple the rates that FHA backed homeowners paid just 4 years ago.
For new FHA homeowners, those buying a home today and using the FHA’s low down payment mortgage program, for example — the FHA’s rising mortgage insurance rates are a nuisance more than anything else. High insurance premiums are the price you pay for getting access to a mortgage with just 3.5% down.
But, for homeowners who already have an FHA backed loan, rising mortgage insurance rates have made it difficult to qualify for the FHA Streamline Refinance, the FHA’s “no appraisal needed” refinance program. This is because while for many people, we can lower their interest rate over 1%, the new higher mortgage insurance costs eat up all the savings. The program rules state that a mortgage applicant’s mortgage payment fall by at least 5% in order to qualify for the FHA Streamline Refinance.
“Mortgage payments” are defined as (1) monthly principal + interest payments, plus (2) monthly mortgage insurance payments. Principal + interest payments have dropped significantly since 2008, but rising mortgage insurance rates have negated these effects. Making that 5% savings marker has become exceedingly difficult.
Potentially millions of FHA-backed homeowners, while eligible, were effectively eliminated from the FHA Streamline Refinance program and from access to today’s low rates.
For long-time FHA-backed homeowners, that’s all changing.
If your current FHA mortgage was endorsed by the FHA prior to June 1, 2009, you are eligible for the FHA’s “grandfathered” mortgage insurance premiums. The new premiums are dramatically lower than the premiums paid by today’s new FHA customers, making the FHA Streamline program once again a great option for home owners.
For eligible homeowners, the new FHA Mortgage Insurance schedule is as follows :
- All loans : 0.01% upfront mortgage insurance premium (verus 1.75% for new loans)
- All loans (except 15-year fixed with LTV of 78% or less) : 0.55% annual mortgage insurance premium (verus 1.25% for new loans)
- 15-year fixed with LTV of 78% or less : No annual mortgage insurance premium