president’s action to lower FHA mortgage insurance premiums
from 1.35% to .85%, economists have tried to estimate the number of existing FHA
borrowers that could benefit from the reduction, and the Urban Institute is no different.
The Washington, D.C.-based think tank recently examined 6.6 million existing FHA loans
, and determined that as many as 2.4 million could benefit from the FHA’s Streamlined Refinance program.
The qualifying loans include: a maximum term of 15 years, origination after June 2009 and borrowers who are current on payments.
Urban said loans originated before June 2009 are already eligible for an annual MIP decrease to 0.55% through the FHA Streamline Refinance program. However, if the pre-2009 loans were added to the mix, approximately 4.4 million could benefit from refinancing, according to Urban
In general, borrowers stand to save money by refinancing if the new mortgage rate and the new FHA premiums, combined, result in a 0.75% reduction or more in annual mortgage costs, according to the Urban Institute. The think tank used the percentage as the base for its final estimate.
Urban also noted that some borrowers are more conservative and might wait until their annual mortgage cost savings hits 1% to refinance. Other borrowers are aggressive and might jump in when they stand to gain only 0.5%.
“Under our 0.75% threshold, which we expect the majority of borrowers to adhere to, we estimate that roughly 2.4 million FHA borrowers could lower their mortgage payments, even after accounting for refinancing costs,” reported Urban. “This represents over a third of the 6.6 million FHA borrowers.”
Using a more conservative threshold of 1%, roughly 1.7 million borrowers could save money by refinancing.
Urban’s estimate is based on the current FHA mortgage rate. Borrowers could stand to save even more if rates continue to decline.