Have you weighed the pros and cons of refinancing your mortgage? There are plenty of reasons to go both ways, but sometimes you can overlook the most obvious reasons to refinance, especially when you are eligible for the FHA Streamline Refinance. This program makes it possible to lower your interest rate and payment with very little work to get qualified – according to the FHA, your original qualifying documents are usually enough to qualify for the streamline refinance. Some lenders might take the process a few steps further in order to ensure that you truly do qualify, but overall, the streamline refinance helps you to save money every month. If you are not convinced that you should refinance your FHA loan, here are three reasons t consider it.
Your Loan Amount is Large
If you borrowed a large amount of money to purchase your home, chances are your outstanding balance is still rather high if you purchased the home within the last 3 years. If that’s the case, even changing your interest rate slightly can make a dramatic change in your payment, saving you money every month. If you want to use the standard formula to see how long it would take you to recoup the closing costs that you must pay in order to refinance, you could take the savings you would gain every month and divide it by the total amount of closing costs. Let’s say for example that you will save $150 per month on your new loan and the closing costs total $3,000. It would take you 20 months to recoup the costs and start benefiting from the refinance. If you plan on staying in the home for at least 2 years, you would come out ahead; obviously the longer you stay in the home, the more you would benefit and the larger the loan amount, the more you will likely save and the quicker you will recoup the closing costs.
The Lender will Pay your Closing Costs
Believe it or not, sometimes lenders are willing to pay your closing costs for you. This is possible because the lender makes the profit off of the interest you pay on the loan. Depending on your situation, a lender might be willing to cover the closing costs for you, making it a no-brainer to use the FHA Streamline Refinance since you will lower your payment and not have to pay anything out of pocket with the exception of the upfront mortgage insurance premium. To make the situation even more lucrative, if you are refinancing within 3 years of obtaining the original FHA loan, you will get a prorated refund of the MIP you paid on the original FHA loan, allowing you to pay even less money out of pocket.
You are Refinancing into a Shorter Term
Technically, the requirements of the FHA Streamline Refinance include the fact that you have to lower your payment, but there is an exception – if you shorten your loan term, you can still use the program. Shortening the term saves you the most money in the long run, so it is a win-win for you and the lender. For example, if you refinance from a 30-year term to a 15-year term, you knock off 15 years off of the interest you would pay on the loan, which would amount to a large amount of savings.
The FHA Streamline Refinance offers you many benefits, even if you only plan on staying in the home for less than 5 years. Every situation is obviously different, but you can determine if it is right for you with a few quick calculations and determinations. When you shop around for a refinance program, negotiate with various lenders to see if any are willing to cover your closing costs for you, or at the very least, who will offer the lowest amount of closing costs to help make your choice to refinance beneficial.