Homeowners with a FHA insured mortgage may be eligible for a special refinance program that offers reduced cost, and reduced documentation refinancing options.
The FHA streamline refinance program allows home owners to reduce their interest rate to current market rates if:
- At least 6 payments have been made on your current FHA mortgage
- No late payments in the past 3 months
- No more than 1 late payment in the past 12 months
- You are currently employed
- You can improve your payment by at least 5%
FHA Streamline Benefit Killers
Benefit is a term used for meeting the minimum FHA streamline refinance eligibility criteria of improving your current payment by at least 5%. The future of this program hinges primarily on the ability to continue to gain benefit from refinancing.
Interest Rates Increase
For almost a year now, interest rates have been dropping to a point where we may have seen the absolute bottom. Currently, interest rates are sitting at a 3 months high with the average national interest rate on a 30 year fixed mortgage at 3.34% after .70% in lender fees according to the most current Freddie Mac Primary Mortgage Market Survey.
The biggest threat to benefit lies here, with the interest rate. In 2012, over 1 million FHA mortgages were used to either purchase or streamline refinance to a lower interest rate. That means that over 1 million home owners have loans with the lowest interest rates in history.
It appears that interest rates can’t possibly go lower as they have been hovering at these rates for nearly 6 months, experiencing slight increases recently as a result of uncertainty around the Presidential elections of 2012 and the more recent “Fiscal Cliff” scares.
As the economy improves, interest rates will increase. This is an undeniable fact of economics 101. Once interest rates increase, FHA streamline refinances go away.
Increasing interest rates are not the only streamline refinance killer facing home owners today, even if interest rates stay exactly where they are today, and mortgage insurance premiums increase as scheduled, this could alienate hundreds of thousands of homeowners by moving the 5% benefit qualification out of reach.
FHA Cost Increases Expected in 2013
Some of the 2013 money raising strategies that were suggested in the HUD report, as well as proposed by members of Congress include:
- Increasing Mortgage Insurance Slightly
- Making Mortgage Insurance Permanent
- Almost Doubling Mortgage Insurance Premiums
My advice? Run the numbers. You have nothing to lose by speaking to a lender to compare what you have now to what might be available today.