Want to save money on your FHA refinance? You'll want to get a low mortgage rate, a low APR, and choose your closing date wisely.
For homeowners using the Federal Housing Administration's FHA Streamline Refinance program, it's best to close as close to the end of a calendar month as possible. Because of an FHA loan quirk, doing otherwise can cost you hundreds in "double-paid" interest.
Although FHA mortgage rates are lower than conventional mortgage rates by 0.25 percentage points, on average, according to data from mortgage origination software provider Ellie Mae, it matters on which date you close your FHA Streamline Refinance.
Each month, there is an optimal closing date for an FHA refinance loans.
The FHA Streamline Refinance is a special refinance program available to homeowners with FHA-insured mortgages. Homeowners with VA loans, for example, are not eligible.
As defined by the FHA, the FHA Streamline Refinance is a reduced-paperwork, verification-free, appraisal-less refinance program which lowers a homeowner's monthly mortgage payment by 5 percent or more monthly.
To use the FHA Streamline Refinance, homeowners must be current on their mortgage; and must have made at least 6 payments on their current FHA mortgage. The FHA Streamline Refinance can be used by any FHA-backed homeowner, including those who use the someday-released FHA HAWK program at the time of purchase.
In addition, the FHA Streamline Refinance allows for loan sizes of up to $729,750, which exceeds the today's FHA loan limit of $625,500. Such high-balance loans are available to borrowers in areas including Loudoun County, Virginia; San Jose, California; and Montgomery County, Maryland.
The FHA Streamline Refinance can also be used for multi-unit homes as well as for homes which were originally financed via the FHA 203k loan, the agency's home construction product.
FHA mortgage rates are typically low.
Because of its limited paperwork, the FHA Streamline Refinance is among the simplest, fastest refinance programs available.
According to FHA guidelines, the streamlined refinance requires no appraisal to commission; no income to verify; and no credit to review (although some lenders ask for tax returns as a risk-limiting measure).
Furthermore, FHA-to-FHA refinances routinely close in 20 days or fewer.
However, just because you can close an FHA refinance with quickly, that doesn't mean that you should.
FHA refis can carry extra costs depending on when you close. This is because a little-known quirk in the FHA program which lets lenders to collect an entire month's worth of mortgage interest, regardless of your loan's true payoff date.
To pick the wrong closing date means "double-paying" up to 31 days of interest.
Here's how it would work in real-life.
Assume a homeowner in Chicago, Illinois is using the FHA Streamline Refinance to refinance a $250,000 mortgage; and assume the homeowner's new FHA loan is scheduled to fund on the 15th of the month.
Because of how the FHA Streamline Refinance rules are written :
The homeowner who funds an FHA Streamline Refinance on the 15th day of the month, therefore, pays 45 days of mortgage interest for 30-day month.
This homeowners double-pays 15 days of mortgage interest which, in this case, is $360.
The better plan, then, is to schedule your FHA refinance closing to fund on the last day of the month. This way, only 1 day of mortgage interest is paid to the new lender, which reduces your total interest paid to 30 days. This saves $335.
FHA mortgage rates are low and the FHA Streamline Refinance is in high-demand. If you're among the many FHA-backed homeowners planning to refinance this year, you'll want to close on the best date possible.
Here is an optimal FHA Streamline Refinance closing calendar for the rest of 2014 and all of 2015. Use these closing dates to minimize your "double interest" paid.
The guide assumes that your home is a primary residence such that the 3-day right of rescission applies.
Note that closings for FHA non-owner occupied properties, rental homes, and other properties not subject to the 3-day right of rescission. Closings for rentals should be scheduled for the last business day of the month, whenever possible.
There's a right and wrong time to close on your FHA Streamline Refinance. Closing at the end of the month can save you the most money. Your mortgage lender can help you coordinate, and you'll maximize your savings.
Planning to refinance via the FHA? Compare your options with a live rate quote now. Rate quotes are 100% complimentary and come with no obligation nor no social security number is required to get started.
The information contained on The Mortgage Reports website is for informational purposes only and is not an advertisement for products offered by Full Beaker. The views and opinions expressed herein are those of the author and do not reflect the policy or position of Full Beaker, its officers, parent, or affiliates.
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2015 Conforming & FHA Loan Limits
Mortgage loan limits for every U.S. county,
as published by Fannie Mae & Freddie Mac, and the FHA.