The FHA’s new mortgage insurance premium rates went into effect in mid-June, the second change this year and the fifth in four years. As the FHA works to balance the viability of the insurance program and the projected losses on bad loans, they are making it clear that not all FHA-insured loans are created equal. And that is a good thing – for some homeowners.

The FHA changed the MIP schedule on April 9 and again on June 11, creating tiered rates for existing FHA mortgage holders and home buyers looking to secure an FHA mortgage. With the new schedule, first-time buyers or recent loan-holders are now subject to higher monthly premiums (both upfront and annual) to take advantage of low FHA interest rates.

However, the new schedule rewards existing mortgage-holders by offering significantly lower rates and reduced fees in an effort to get stable homeowners spending more money in the economy. In recent years, existing mortgage-holders may have found it difficult to qualify for the FHA Streamline Refinance due to steadily rising insurance premiums. Streamline Refinancing requires a 5 percent reduction in total mortgage payment for refinancing, a hurdle that many homeowners found difficult to clear.

With the new rates, the FHA has significantly lowered the bar for refinancing to homeowners who have held an FHA mortgage for more than 3 years. This is great news, with USA Today reporting that mortgage rates are continuing to drop to record lows.

What do these changes mean to you?

If you’re replacing an FHA mortgage endorsed before June 1, 2009, the upfront mortgage insurance premium (UFMIP) is reduced to .01 percent of the total loan. So, if you have a loan of $250,000 it will cost only $25 rather than the $2500 currently charged. Additionally, the annual insurance premium has been cut from 1 percent to .55 percent – dropping a $2,500 payment to $1,375.

In another large change for existing homeowners, the FHA stripped Streamline Refinance of nearly all the verification and approval requirements, opening the door for even homeowners who are underwater to refinance. Under the new guidelines the FHA will not verify employment, income or credit score.

Are You Eligible?

With the new changes dropping the barriers to refinance, it is highly likely that you will be able to refinance your FHA mortgage, but there are still a number of standards you must meet.

1. You’ll need a 12-month record of perfect payments. The FHA is seeking to reduce the overall risk of its loans, so only homeowners with a perfect record will be eligible for the reduced rates.
2. You must have a tangible purpose for refinancing, and the refinance may not increase the total balance of your loan.
3. Your loan must have been endorsed before June 1, 2009.

If your mortgage was endorsed on or after June 1, 2009, your MIP rates will be the same as all other new FHA loans which increase upfront MIP to 1.75 percent and annual MIP according to the value of your loan.

Refinancing an existing FHA mortgage has become much easier for long-term homeowners, re-opening the door to today’s historically low interest rates. However, committing to the wrong loan can have long-lasting impact on your finances, so make sure to weigh your options carefully.

Be sure to talk to your loan officer to time your refinance correctly to ensure you get the most from FHA mortgage rates and the new insurance premiums.