FHA Streamline Refinance Tips : How To Avoid That Pesky “Double Interest” Charge At Closing
For U.S. 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. Doing otherwise can cost you hundreds of dollars in "double-paid" interest.
The date on which you close your FHA Streamline Refinance matters. Choose wisely to save money.
What Is An FHA Streamline Refinance?
The FHA Streamline Refinance is a special refinance program available only 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 meant to lower a homeowner's monthly mortgage payment by 5 percent or more monthly.
Homeowners must be current on their mortgage to use the FHA Streamline Refinance, and must have made at least 6 payments on their FHA-insured loan in order to be eligible.
The FHA Streamline Refinance is available in all 50 states and allows for loan sizes of up to $729,750 in certain high-cost areas including Loudoun County, Virginia; San Jose, California; and Montgomery County, Maryland.
In high-cost areas in which multi-unit homes are common, maximum FHA loan sizes are even larger. In Brooklyn, New York, for example, a 3-unit home can be financed up to $1,129,250; financing for a 4-unit home is available up to $1,403,400.
Time Your FHA Streamline Refinance Closing
Because of its limited paperwork, the FHA Streamline Refinance can be among the simplest, fastest refinance programs available. According to FHA guidelines, there is no appraisal to commission; no income to verify; and no credit to review (although some lenders may ask for tax returns as a risk-limiting measure).
Despite the breezy nature of the product, however, to close on a FHA Streamline Refinance requires vigilance. Specifically, refinancing homeowners should pay special attention to their expected mortgage closing date.
What's at stake is up to 30 days of prepaid mortgage interest which may be double-paid without your knowledge. It's because of a little-known FHA rule which gives mortgage lenders permission to collect a full month of mortgage interest, regardless of whether the loan's been paid off prior to the month's end.
This is different from a conventional refinance for which a mortgage lender will only collect through the payoff date.
To put this FHA rule to an example, assume a homeowner in Chicago, Illinois is using the FHA Streamline Refinance to refinance a $250,000 mortgage; and assume the new FHA loan will fund on the 15th of the month.
- 15 days of per diem interest paid to new lender, to cover the rest of the month
- 30 days of per diem interest paid to old lender, because the FHA prescribes it
The homeowner who funds an FHA Streamline Refinance on the 15th day of the month, therefore, is paying 45 days of mortgage interest for 30-day month -- a waste of 15 days of interest. Or, in this case, $360.
The better plan is to fund the the loan on the 30th of the month such that only 1 day of mortgage interest is paid to the new lender, reducing the total interest paid to 31 days. This saves $335.
2013 FHA Streamline Refinance Scheduling Calendar
FHA mortgage rates are low and the FHA Streamline Refinance remains in high-demand. If you're among the many FHA-backed homeowners planning to refinance this year, then, make sure you close on the best date possible.
Here is an optimal FHA Streamline Refinance closing calendar for the rest of 2013. 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.
- September 2013 : A Wednesday, September 25 closing will fund September 30, 2013
- October 2013 : A Friday, October 25 closing will fund October 30, 2013
- November 2013 : A Monday, November 25 closing will fund November 29, 2013
- December 2013 : A Thursday, December 26 closing will fund December 31, 2015
Closings for FHA non-owner occupied properties, rental homes, and other properties not subject to the 3-day right of rescission should be scheduled for the last business day of the month, whenever possible.
FHA Streamline Refinance Mortgage Rates
Like most other mortgage rates, FHA mortgage rates have dropped steadily since 2011 and are now near lifetime lows. Refinance activity is up and demand for the FHA Streamline Refinance program remains strong.
If your current mortgage is FHA-insured, see how an FHA Streamline Refinance can help your monthly budget. Qualification hurdles are low, and so are monthly payments. Get started with a rate quote right now.