FHA Streamline Refinance: Lower Fees, More Savings

FHA Streamline Refinance: Lower Fees, More Savings

HUD just announced that it will be increasing FHA fees on all non-streamline FHA mortgages originated on or after April 9th, 2012. FHA streamline mortgages will not be subject to this increase.

In fact, HUD will dramatically reduce FHA fees on June 11th, 2012, for homeowners who took out their existing FHA mortgages prior to June, 2009.

What is an FHA Streamline Refinance?

An FHA streamline refinance is a specific program reserved for homeowners that currently have an FHA mortgage. They can refinance into another FHA loan with little or no costs, no appraisal, and no income verification (employment verification required). To qualify, their payment must be reduced by a minimum of five percent.

How Much Will Fees Decrease?

First, it’s important to know that there are two types of FHA fees:

  • Upfront Mortgage Insurance Premiums (UFMIP) – added to the loan balance

    (Currently 1% of loan amount on all FHA mortgages)
  • Annual Mortgage Insurance Premium (MIP) – added to the monthly payment

    (Currently 1.1% or 1.5% on terms > 15 years and .25% or .50% on terms < 15 years)

Beginning June 11th, 2012, the UFMIP on all FHA streamline refinances will be cut to just .01% of the loan amount.

And the MIP on all FHA streamline refinances will be changed to .55%. So, while every streamline refinance will benefit from the lower UFMIP, only loans with terms greater than 15 years will benefit from a lower MIP.

How Does This Equate into Real Savings?

The example below is based on a base loan amount of $200,000 and a 30-year fixed rate of 3.75%:

Streamline Refi with Current FHA Fees
$200,000 Base Loan Amount

+ $2,000 UFMIP (1%)

$202,000 Final Loan Amount

Monthly Payment: $935.49 + $183.33 (MIP of 1.1%) = $1,118.82

Streamline Refi with FHA Fees June 11, 2012

$200,000 Base Loan Amount
+ $20 UFMIP (.01%)
$200,020 Final Loan Amount

Monthly Payment: $935.49 + $91.67 (MIP of .55%) = $1,027.16

In this example, a homeowner will save almost $2,000 in equity and almost $100 per month.

Why Now?

Why did the government decide to reduce these streamline fees now? After all, HUD is still hemorrhaging money.

One theory is that the Obama Administration and lawmakers can now boast about reducing the cost of refinancing during an election year. It also provides political cover for the dramatic increase to the same fees on all non-streamline FHA loans.

The other theory is far less cynical. For proper context, it’s important to understand that HUD has been steadily increasing FHA fees since early 2009. Homeowners that took out their FHA mortgages prior to 2009 are paying a lower MIP. It makes no sense for most of them to refinance since a lower rate would most likely be offset by the large increase in their MIP.

By lowering the MIP, the government is hoping to entice more of these homeowners into refinancing.

Perfect Timing

Regardless of the reasoning behind this decision, it is welcome news. The combination of historically low interest rates and lower FHA streamline fees will allow more struggling homeowners to refinance and save monthly.

However, HUD’s reactionary response to its growing deficit in the recent past is a good indication that they could adjust FHA fees again in the future. Homeowners would be wise to act soon.

Meridian Home Mortgage has an expert staff that can process your application quickly. Call and speak to one of your Personal Advisors to find out how an FHA streamline refinance can benefit you.