For upside down homeowners that have a FHA mortgage right now, the Streamline Refinance loan is one of the most effective tools available for taking advantage of today’s historically low interest rates.
FHA interest rates have been lower than conventional interest rates for quite some time now.
This hasn’t always been the case, and it may not always be the case, but for now it’s a reality and something to take into consideration when exploring your payment reducing options.
If you’re underwater now, or close to being underwater, and have a FHA mortgage, there is a great opportunity to “step up” into an equity position that would enable you to eliminate or, at the very least, significantly reduce your mortgage insurance payment with the ability to remove it as soon as possible.
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The High Cost of Low FHA Interest Rates
While FHA interest rates are lower than conventional rates in today’s market, this does not necessarily translate into lower mortgage payments.
FHA has been on a fast and furious pace of increasing the cost of using government insured mortgages by raising the Mortgage Insurance Premiums it charges.
Time is Money Equation: Pay Down Equity +
Rising Home Values =
No Mortgage Insurance
Mortgage insurance premiums have increased 6 times in the past 5 years. The annual mortgage insurance premium is added directly to your monthly mortgage payment.
This means that if your neighbor has a FHA insured mortgage from March 30th, 2013 and you take out a FHA loan on April 2nd, 2013 with the exact same loan amount and interest rate, your payment would be higher due to the increase in the annual mortgage insurance premium.
Permanent FHA Mortgage Insurance on June 3rd, 2013
On June 3rd, 2013 FHA mortgage insurance becomes permanent. This doesn’t mean that you’re stuck with mortgage insurance for the rest of your life with no options, it simply means that you have to refinance out of the loan in order to remove the mortgage insurance.
Educated and empowered homeowners can approach a FHA streamline as a stepping stone, not a long term solution.
Choosing the Best FHA Streamline Option
In order to qualify for a FHA streamline refinance, you must realize a minimum 5% decrease in your mortgage payment. Depending on your current loan balance, this can come out to hundreds of dollars of savings every month.
If you are only slightly underwater, or if you live in an area of California where home values are increasing rapidly, you might want to consider a 5 year FHA ARM. The interest rates on a FHA 5/1 ARM can be as much as 1% lower than a 30 year fixed.
Rising Home Values Wipe out Need for FHA?
California home values have increased Statewide just under 30% over the past year from April 2012 to March 2013.
Underwater homeowners doing a FHA streamline refinance may not have to wait for long before home values rise to the point where it’s possible to remove high cost FHA mortgage insurance.
Remove Mortgage Insurance Faster
By far the best strategy for removing FHA mortgage insurance faster is to leverage the best of both worlds, pay down equity faster while benefiting from increasing home values.
Benefiting from increasing home values requires no effort or strategy, simply live in the home and hope that the market continues to bring you good fortune and abundant equity.
Leveraging a FHA 5/1 ARM Streamline Refinance puts the power of equity building directly in your hands. Yes, it would be great to lower your mortgage payments, I get that, but what if there was an even greater benefit from not reducing your payments?
Consider reducing your interest rate and continued to make the same payments you were making before the refinance. The excess payment would be applied directly to the principle balance of your loan and accelerate the equity being built.
Nothing to Lose But Mortgage Insurance
Let us take the risk out of your research. Tell us your property address and loan details and we’ll return an in depth savings analysis to determine what options might be available to you.