We have just gotten a little bit of good news about mortgage finance from Washington for a change. While it’s not everything we might have hoped for, it is a step in the right direction.
Since 1984, homeowners with FHA loans have been able to refinance into a lower rate using the “Streamline” refinance program. The process of getting the new, less expensive loan involves far fewer barriers than did their original loan; no appraisal or income qualifying meant a much easier process for everyone.
Refinancing a $300,000 loan from 5.5% to 4% would save abut $270 per month. Sweet.
Then FHA raised the monthly mortgage insurance premium—from .55% to 1.15% per month. That meant that someone refinancing a $300,000 loan would have to pay the higher insurance rate—an increase of around $140 from what they had been paying. For many homeowners, there was no point in refinancing, even though the interest rates were much lower.
Under the new FHA Streamline guidelines just announced in Washington, the monthly mortgage insurance premium would be the old .55%—but only for those loans that had been originated prior to June 1, 2009.
It’s not everything we would hope for, but at least it’s a step in the right direction. It appears that some 3 million homeowners will be able to take advantage of this program. Happily, this plan does not need the approval of Congress. Given the way Congress has been operating over the last few years, that is a huge relief.
FHA rates today are hovering around 3.75% for loans up to $417,000—and at that rate, a borrower would receive enough rebate from the lender to pay most, if not all, of the closing costs. Loan amounts up to $729,750 have a slightly smaller rebate at that 3.75% rate.
For those borrowers with loans originated after June 1, 2009, there is still an opportunity to save—just not quite so much, because of the higher mortgage insurance. Those premiums will increase again after April 1, so it’s a good idea to decide now whether you should take action.