FHA Streamline Refinance a good deal?

[Panchos]

Afternoon,

I just got a call from my mortgage company offering to refinance. They proposed an FHA streamline refinance. They said I could get a new rate of 4.5% (I'm currently at 5.875%) for $0. This would lower my monthly payment by about $350 a month. I've already got about $65,000 in equity. The refinance would place me back in a 30 year term with no penalties for early pay-off (which I fully intend to do). Seems like a no brainer to me. Am I missing anything?

Thanks!

[Another Reader]

Yes you are.  Do you have enough equity to get out of FHA and go conventional?  You will now pay MI for the life of the loan plus the up front costs for an FHA loan are high.

[Panchos]

I currently owe $75,000 on the loan (initially $138,000). My plan was not to refinance because I was hoping to have the mortgage paid in the next couple of years and I really don't want to mess with getting an appraisal, etc. However, if I can find a program where it makes sense, then I don't see any problem in refinancing.

Also, where are the fees built in? He said it wouldn't cost any money to lower to 4.5%. He advised if I wanted to go to 4.375% then it would cost $400.

[Another Reader]

Get a good faith estimate from him.  That will show all the estimated fees.  Also, the rate is too high for what you are trying to accomplish.

Shop around.  Yes, your current lender can do a streamline FHA, but you should be able to do better on a conventional.  Check Aim Loan, PenFed, and Amerisave mortgage websites.  You should be able to get a no-cost refinance for 15 years at 3 percent or a little higher with good credit.  Around here, the payday lender Cash Call is advertising no-cost 15 year loans at 2.875 percent.

[katstache92]

I'm not sure there is any reason to stick with an FHA loan and I can think of at least one big reason not to.

Like Another Reader mentioned the revised FHA regulations require PMI to be paid for the life of the loan.  This effectively raises the rate you end up paying over the life of the loan since the PMI is a fixed cost.

I'm currently looking at refinancing with a different bank that will do a home equity installment loan where I just pay the recording fee (probably about $200) and that's it.  Since it's not a conventional loan there are no traditional closing costs like lender title insurance.

I have a family member who works for a title company and he said this is the way to go.  The rates are a little higher than a conventional, but I get to ditch PMI since I can bring money to the table to reach 20%.  Since you're already past 20% there is definitely no reason to stick with FHA.  Now I'm also shortening the term of my loan from 30 years to probably 22, so that's how I gain some savings even though the rate is a little higher.

[frugaliknowit]

FHA is a rip off.  You are paying for other people's bad credit/low equity risk.

[Panchos]

Does anyone else have any suggestions with lenders? Is it better to go local or a national lender?

[Another Reader]

I gave you three to check - Aimloan, PenFed CU, and Amerisave.  A local mortgage broker should be able to shop alternatives among lenders as well.

Remember, this guy called you, you did not call him.  You are on a list the bank's computer spit out.  The list is not a list of people that the kindhearted people at the bank wanted to help.  The list is a list of people the bank can profit from nicely by refinancing them.  This lender has no obligation to get you the best deal and has only shown you one loan product.  Shop around!

[Panchos]

Will do. Thanks

[Panchos]

So I'm a little confused as to what I should do... My goal was to have the house paid within the next 5 years. I could refinance to a 10 or 15 year note for about $2350 and bring my rate down to 3.25 vs 5.875. On a 10 year note, that would keep my payment about the same; but on a 15 year note, it'd drop by about $250/month. There's always the options of a 20 or 30 year note, but I'm not sure that's what I want to do and the rate would be 4-4.5 and cost anywhere from $1000-$4000. Any suggestions? My goal is to get the house paid as soon as possible while still being able to invest in my 457. I'm just not sure it's worth the fees to refinance...

[Another Reader]

In your case, substituting a HELOC for the mortgage might make sense.  Often these are available at low or no costs.  Some have rates fixed for varying periods.  PenFed is offering a HELOC that is fixed for 5 years at 3.75 percent for your loan to value ratio.  PenFed pays almost all the closing costs, unlike a mortgage.

https://www.penfed.org/55-Equity-Line-of-Credit/