HUD recently reduced annual mortgage insurance premiums for FHA 30 year fixed rate mortgages by 50 basis points. The annual mortgage insurance premium is part of the monthly mortgage payment and 50 basis is a dramatic reduction. If you have a $400,000 loan amount, this is a monthly savings of $166.67 (400,000 x 0.50% divided by 12 months).
Over the last couple years, HUD has increased the annual FHA mortgage insurance premium to a point where they were becoming uncompetitve with conventional financing unless you had a circumstance where an FHA loan made sense.
The reduction of FHA mortgage insurance opens the door for homeowners who bought (or refinanced) in the last couple of years who used an FHA mortgage for financing and may not have enough equity to switch to a conventional mortgage. This is especially true for home owners who have loan amounts that are “high balance” (loan amounts from $417,000 to $517,500 in King, Snohomish and Pierce Counties) with less than 10% home equity and for home owners who have FHA loans with loan amounts that exceed our current high balance limits ($517,501 – $567,500) as HUD will allow FHA loans that exceed the current FHA loan limits to streamline refi.
Yesterday, I was helping a client who purchased his Redmond home in 2013 using a minimum down FHA jumbo. His current balance of $560,000 exceeds the 2015 FHA loan limits for King County. He does not have enough equity to qualify for a jumbo refi nor does he want to bring cash to closing to bring his loan amount down to the current high balance loan limits. He is eligible to do an FHA streamlined refi and reduce his FHA mortgage insurance payment by $260 a month and still have the same low mortgage rate from 2013.
FHA mortgage insurance from that era, does not “drop off” your payment like a conforming mortgage insurance. Reducing your payment by a couple cool hundred a month seems to pencil out to me… as it does to HUD based on the “net tangible benefit” requirement.
If you have obtained an FHA mortgage 2011 or later, odds are you have higher mortgage insurance premiums that what is currently available and with how low mortgage rates currently are, refinancing could make sense.
If your home is located in Washington state, where I am licensed, I am more than happy to review your refinance options with you – even if that means that refinancing right now does not make sense. Click here if you would like me to provide you with a mortgage rate quote.