FHA offering streamlined refinancing

November 11, 2011

I was listening to your radio show recently and a caller had a mortgage with a big bank and wanted to get his interest rate lowered. He stated that he wasn’t behind in his payments but wanted more cash flow for the household.

You stated that if he had an FHA loan, there was a program he could use to refinance. I missed what that program was called. I have an FHA loan with the same bank and also want to lower my interest rate.

My rate currently is 5.25 percent and I am current on my mortgage. Can you give me some direction on this?

The Federal Housing Administration (FHA), which is part of the Department of Housing and Urban Development, has required its lenders to offer FHA borrowers a streamline refinance. There is no appraisal required for this refinance, so the question of whether you have any or enough equity in the property shouldn’t be a problem.

Because this is a streamline refinance, costs should be minimal. All the lender is doing is lowering the interest rate on the mortgage. The paperwork and other details shouldn’t change. So, if you have 25 years left to repay your loan, you’ll still have 25 years — you’ll just pay interest at a lower rate for those years.

Pick up the phone and call your lender today.

My husband and I are 56 and 55 respectively. We have three college tuitions and two of three weddings done, and we are now thinking of taking advantage of the great prices for a vacation condo.

We have enough cash for the 20 percent down payment, but won’t have the full amount until we reach 59 1/2 and can cash out some of our investments. We both have 401(k)s, and full pensions when we retire.

We first thought about taking an early withdrawal, but decided against that with all the penalties and taxes. We are now thinking in terms of a 5/1 adjustable rate mortgage (ARM) and paying it off when we reach the age where we can withdraw without penalty.

Is this a good idea? Do you have any other suggestions?

Borrowing money at today’s historic low interest rates is a very good idea. You’ll need at least 20 percent down to get the best interest rate, and you can decide if paying 4.5 percent is a smart move or if you’d prefer to pay off the property over a few years once you have access to your 401(k)s and pensions.

Prices are extremely cheap in some second-home locations, and there are loads of foreclosures, some of which might be well worth a look in terms of value. We recommend that you try to buy something cheap that will sell easily in five or seven years, in case your plans change.

We don’t recommend 5/1 ARMs at the moment, simply because the fixed interest rates are so low. The best choice at the moment is a 15-year loan, if you can swing the payments. That will allow you to take advantage of even lower interest rates. That way, if you decide to keep the loan, you know you’re protected against higher interest rate swings. (We recently refinanced to a 15-year at 3.25 percent, but the interest rate on a vacation home might be slightly higher.)

One option would be to refinance your primary home (assuming it is paid off) to a 10-year mortgage. Right now, those interest rates are hovering around 3.25 percent (or less). It’s a great way to lock in a super-low rate. Essentially, you’ll only be paying principal with very little interest in each payment.

Run some numbers and then talk to three or four different lenders to get an idea of what it will cost you to finance this property. If your vacation destination is in another state, consider speaking with a lender that is local to that area. You’ll want someone on the ground who really understands what happens locally.

Good luck.

Ilyce R. Glink is an author and nationally syndicated columnist. Her latest book is “Buy, Close, Move In!” Samuel J. Tamkin is a real estate lawyer in Chicago. If you have questions for them, write to Real Estate Matters Syndicate, P.O. Box 366, Glencoe, Ill. 60022, or contact them through thinkglink.com

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