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FHA to Cut Refinance Fees

June 20, 2012
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It’s about to get a lot cheaper to refinance an FHA mortgage – provided you’ve had it for at least three years.

Effective June 11, the FHA is reducing the fees it charges borrowers who refinance a current FHA mortgage obtained prior to June 1, 2009. At the same time, it’s raising the annual mortgage insurance premiums charged on jumbo mortgages with base loan amounts of more than $625,500.

Fees slashed on streamlined refinances

Here are the changes: For borrowers doing a streamlined refinance of a home mortgage insured by the FHA on or before May 31, 2009, the upfront mortgage insurance premium charged at closing drops to 0.01 percent of the base loan amount, down from 1 percent previously. On a $200,000 mortgage, that means paying only $20 instead of the $2,000 currently charged.

Meanwhile, the annual insurance premium on those same loans is being reduced to 0.55 percent of the loan amount, down from 1 percent currently. So on a $200,000 streamline refinance, the annual fee would drop to $1,100, down from $2,000 presently.

A streamlined refinance is a near-automatic refinance for borrowers who presently have an FHA mortgage and are current on their payments, even if they’re underwater on their mortgage. Some limitations do apply.

Fees going up on jumbo loans

At the same time, the FHA is increasing the annual insurance premium on jumbo mortgages by a quarter of a percentage point across the board. Annual fees on FHA mortgages with base loan amounts over $625,500 will now be as follows:

• 30-year fixed-rate mortgages with loan-to-value ratios of greater than 95 percent (i.e., 5 percent or less down payment or home equity): 150 basis points, or 1.5 percent, per year.

• 30-year fixed-rate mortgages with loan-to-value ratios of 95 percent or less: 125 basis points, or 1.25 percent.

• 15-year fixed-rate mortgages with loan-to-value ratios of greater than 90 percent: 85 basis points, or 0.85 percent.

• 15-year fixed-rate mortgages with loan-to-value ratios of 90 percent or less: 60 basis points, or 0.85 percent.

For mortgages with base loan amounts of $625,500 or less, the annual insurance fee remains 25 basis points below the above figures. The annual insurance premium is waived for FHA mortgages with loan-to-value ratios of 78 percent or less and amortization terms of 15 years or less.

On standard FHA home purchase mortgages, the upfront mortgage insurance premium is 1.75 percent.

Other fees recently increased

The FHA recently raised many of its fees to help make up for losses incurred due to bad loans. However, it is reducing fees on refinancing in order to make it easier for borrowers with established mortgages to qualify for lower interest rates.

Because of their added fees, FHA mortgages have traditionally accounted for only a small part of the mortgage market, but in recent years have increased to where they currently account for about one-third of all home purchase mortgages, owing in large part to the fact they are one of the few places that non-veterans can still obtain mortgages with as little as 3.5 percent down.

Source: mortgageloans.com

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