FHA Stramline Refi - Do it

[Becky Comish]

Here's what we're being offered by the mortgage broker we work with. Is this worthwhile to do? - Our current payment will go down from $1287 to $1154 - so about $134 in cash flow savings. - no closing costs. Our broker is offering to pay the $3167 in closing costs in exchange for a bump in interest rate. - new interest rate will be 3.875%. Old rate is 5.25%. - the mortgage insurance premium is actually increasing from $53.60 to $79.91. And now it sticks for the life of the loan (whereas our old insurance premium would have sunset in 2020. This is a 2-family, and is our lowest cash flow building so we really care predominantly about the cash flow. We're looking at a savings of $134 per month for now and $80 per month after 2020 (when the mortgage insurance premium would have sunset. My biggest question is whether the 3.875% interest rate in exchange for no closing costs is worthwhile, or if we should shop around.

[Albert Bui]

Originally posted by @Becky Comish:

Here's what we're being offered by the mortgage broker we work with. Is this worthwhile to do?
- Our current payment will go down from $1287 to $1154 - so about $134 in cash flow savings.
- no closing costs. Our broker is offering to pay the $3167 in closing costs in exchange for a bump in interest rate.
- new interest rate will be 3.875%. Old rate is 5.25%.
- the mortgage insurance premium is actually increasing from $53.60 to $79.91. And now it sticks for the life of the loan (whereas our old insurance premium would have sunset in 2020.
This is a 2-family, and is our lowest cash flow building so we really care predominantly about the cash flow. We're looking at a savings of $134 per month for now and $80 per month after 2020 (when the mortgage insurance premium would have sunset. My biggest question is whether the 3.875% interest rate in exchange for no closing costs is worthwhile, or if we should shop around.

 HI Becky,

FHA streamlines can be complex since there is upfront MIP or UFMIP that gets factored in as well unless the lender said they are going to issue a lender credit large enough to cover that in cash at closing for you (you'd need the 3167 in closing costs + the 1.75% of your loan amount which can add to thousands more needed).

3.875% is not bad if you're no longer occupying the property and youre doing a FHA streamline on a "non owner occupied," property.

Right now Streamlines are around 3.250% with up to .50% back on any given day since pricing fluctuates day in and day out.

Like I said though, non owner FHA streamlines are more costly so with out knowing all the lending criteria no lender can accurately quote your scenario.

All things considered, if your current loan balance will not go up, you'll save monthly payment, and you will not bring in little if any closing costs then its a great deal because there is only net net benefit.

The critics will say but ohh you restarted your 30 year fixed loan or that you'll have MI for life. While these can be valid concerns its important to consider the "net net," cost of financing over the long haul.

If you were at 5.25% rate before and your MI was lets say .55% then you're paying a 5.80% effective rate. If this lender is now mentioning its now 3.875% + .80% (current FHA MI if you have atleast 5% equity) then your effective rate is now 4.675% which is still over 1.125% lower than your current loan) so its a definite interest cost benefit.

The other factor you'll have to resolve is the closing costs and prepaids. Just because a lender says no cost doesnt mean you wont bring in anything to closing. Beyond closing costs the impounds and prorated interest can be just as high as the closing costs if not higher. You can either take the rate up a bit more to get a lender credit large enough to cover all of the closing, prepaids, and prorated, interest or decide to do a half/half strategy where you only get enough LC to cover one portion and bring in cash for the other.

Hope that helps.