Mortgage rates edge lower as FHA refinances get easier, cheaper

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Rates on the most popular types of mortgages declined slightly, just in time to allow refinancing homeowners to also cash in on cheaper Federal Housing Administration refinances, according to HSH.com’s Weekly Mortgage Rate Radar.

The average rate for conforming 30-year fixed-rate mortgages fell by a single basis point (0.01 percent) to 4.04 percent. Conforming 5/1 hybrid ARM rates decreased by 2 basis points, closing the Wednesday-to-Tuesday wraparound weekly survey at an average of 2.94 percent.

“Mortgage rates remain both stable and favorable, and opportunities to buy or refinance a home have been pretty strong for a few months” said Keith Gumbinger, vice president of HSH.com.

“However, there are costs to refinancing which can be a deterrent for some borrowers who lack the cash to participate in the market,” he added.

That’s changing.

On Tuesday, President Obama announced a lower-cost Federal Housing Administration Streamlined Refinancing Program for certain homeowners with existing Federal Housing Administration (FHA) loans. Fees for the new FHA loan have been substantially reduced.

Effective June 11, 2012, for qualifying borrowers, the cost for the upfront mortgage insurance on FHA loans will be reduced to 0.01 percent of the loan amount, down from 1 percent.

The annual mortgage insurance amount will be reduced from 1.15 percent to only 0.55 percent per year.

Qualifying borrowers must be current on an existing FHA-insured mortgage signed on or before May 31, 2009.

Also, the new lender is not required to verify the homeowner’s income, employment or credit score. That could be risky for the market. Remember the impact of “no-doc” or “NINJA” (no income, no job or assets) loans?

With no appraisal required, the homeowner can be underwater — owing more than the home is worth. That’s another potential problem. During the boom, borrowers often signed for more mortgage than they could afford and went bust.

According to the FHA, currently, 3.4 million households with loans endorsed on or before May 31, 2009, pay more than a five percent annual interest rate on their FHA-insured mortgages. By refinancing through the FHA’s streamlined process with the lower insurance costs and lower interest rates, borrowers could save an estimated $250 a month or $3,000 a year.

“The new program will save many homeowners a bundle of cash both at the closing table and for years to come compared to what they would have spent. This looks like a good deal,” said Gumbinger.

HSH says average mortgage rates and points for conforming residential mortgages for the week ending March 6 were:

• Conforming 30-year fixed-rate mortgage
Average rate: 4.04 percent
Average points: 0.26

• Conforming 5/1-year adjustable-rate mortgage
Average rate: 2.94 percent
Average points: 0.23

Average mortgage rates and points for conforming residential mortgages for the previous week ending February 28 were:

• Conforming 30-year fixed-rate mortgage
Average rate: 4.05 percent
Average points: 0.25

• Conforming 5/1-year adjustable-rate mortgage
Average rate: 2.96 percent
Average points: 0.24

Read more FHA news.

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