FHA Streamline Refinancing — Is Now The Time?

by Peter G. Miller
August 17th, 2009

The latest numbers from Freddie Mac tells us that the typical 30-year mortgage was priced at 5.29 percent last week. That’s for fixed-rate financing with .7 points.

If you look at interest rates during the past 50 years you will see that mortgage costs have rarely been lower. No less important, when they have been lower they haven’t been lower by much.

All of which raises a question: Given massive government deficits and continuing trade imbalances do you really think such rates can last? Is inflation never coming back?

I’m a fan of fixed rates — if rates rise and you have a fixed rate you’re fine. If rates fall significantly then you can refinance. But just how significantly can rates fall from 5.29 percent?

All of which brings us to the FHA Streamline refinance program. At a time when it is very difficult to refinance in most areas because of falling home values, the FHA program is worth looking into. Here’s why:

The concept of the FHA Streamline refinance is very simple: The government thinks you’re less likely to default if you have smaller housing costs, therefore they would be elated if you replaced your current FHA mortgage with something new and cheaper.

Now you might think, ah , what about falling home values? No worries. An appraisal is usually not required.

Why no appraisal? Let’s say you bought a home with a $200,000 FHA mortgage and the property is now worth $175,000. Let’s also say that your monthly payment at $1,264 at 6.5 percent. If you could refinance to 5.5 percent, then your monthly cost for principal and interest would be $1,136. You’re ahead $128 a month or $1,536 a year.

Notice what’s happening here. Yes the value of the home has dropped, but the value of real estate is irrelevant to lenders — and to the FHA insurance program — as long as you keep making your monthly payments. And if it happens that your monthly costs are lower, then you’re more likely to send in a check each month.

In basic terms, to get an FHA Streamline refinance you need:

___ An FHA loan.

___ An FHA loan which is current

___ An FHA refinance which will reduce your monthly costs.

___ A refinance for the amount owed plus costs. In other words, you can’t take out cash from the property.

Is this a good deal? For many FHA borrowers this is the only realistic refinancing option they have. For non-FHA borrowers the FHA Streamline refinance program is still-another reason to have gotten an FHA loan in the first place — or to get one now.

HUD reports that as of July 15th that a total of 256,710 FHA Streamline refinances had been completed since last October 1st. That’s 38.5 percent of all FHA refinances this fiscal year. That’s a huge number of people who have taken advantage of a very smart and useful program.

As always, speak with lenders regarding specifics for the FHA Streamline refinance program to see what’s available in your specific situation.

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