Cashman: Refinance options for FHA borrowers

There is a little known opportunity for current FHA-financed homeowners to refinance into today’s record low interest rates without incurring the hefty Upfront Mortgage Insurance Premium that FHA charges on new mortgage loans.

The program also reduces the monthly mortgage insurance premium charged on FHA loans to a 0.55 percent factor as opposed to the 1.20 to 1.25 percent factor charged annually on new FHA loans.

Also, since the transaction is referred to as a “Streamline Refinance,” no appraisal is required. Value of the home is obtained from FHA based on the last transaction they made to take out their current FHA loan. Even if the current home value is less than the balance of the loan, it is not a threat to this type of transaction.

According to Don Monsen, branch manager for Wintrust Mortgage in Crystal Lake, there are a few restrictions to the program:

• The current FHA loan must have been endorsed by FHA prior to May 31, 2009. This date keeps FHA in line with the cutoff date for conventional loan homeowners to be eligible for the popular Home Affordable Refinance Program.

• The homeowner must be current on his existing loan payments, no more than one 30-day late payment in the last 12 months, none in the last three months.

• Homeowners must “credit qualify.” Generally speaking, they must have stable monthly income and a good credit history to qualify for the new loan.

According to Monsen, an example of the savings available on this reduced fee FHA refinance loan: Original FHA loan closed in March 2009, $180,000, 30-year fixed FHA mortgage at 5 percent interest. The homeowner is paying a principal/interest payment of $966.28 month and paying approximately $77.60 per month month for the mortgage insurance premium.

Upon making the Jan. 1, 2013, mortgage payment, the balance was $169,320, assuming the homeowner paid the required payment each month and no additional principal.

"Their new FHA loan cannot exceed $170,000 (rounding), the upfront mortgage insurance premium is $17 paid one time only, at closing," Monsen said. "The monthly principal and interest payment is $739.85 per month and the new monthly mortgage insurance premium is $77.92 or total savings of $226.11 a month."

Monsen said the homeowner also has an option to reduce the term of the new loan to a 25-year term and still save $123 per month.

"The savings are significant, but the savings are magnified when compared to an FHA loan that is not eligible for the reduced refinance factors," Monsen said. "If originally endorsed after May 2009, the Upfront Mortgage Insurance Premium must either be paid in cash or financed (added to) with the new loan. If financed, the loan amount rises to $172,975. The monthly mortgage insurance also dramatically increases if not eligible for the reduced fees (post May 2009) to as much as $177.08 a month."

He said these two factors combine to eat up a large chunk of the monthly savings for original post May 2009 FHA-refinance loans. Still, a new 30-year fixed rate FHA mortgage can save $114 a month as compared to their existing payment, but the savings are not as dramatic.

"I have not seen the FHA program publicized or discussed anywhere near the extent of the HARP programs," Monsen said "There are literally thousands of FHA-financed homeowners in McHenry County who are eligible for the FHA reduced fee refinance program. I’m just looking to see that the word gets out. Most, if not all of these folks can use the extra money each month."

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