Suzanne Plewes, RE/MAX Alliance in Loveland
FHA mortgages work a bit differently than conventional loans. Understanding the differences can help you save money during the refinance process. If you have an FHA loan, keep these tips in mind.
Saving on Mortgage Insurance premiums
FHA mortgages include an up-front and monthly mortgage insurance premium (if your down payment is less than 20%). If you are refinancing within a certain number of years of first obtaining the loan, then you may be eligible for a partial refund of the up-front premium that you originally paid. Be sure to ask your loan officer about this.
Selecting an optimal closing date
Interest calculations on FHA loans are much different than conventional loans. For conventional loans, interest is calculated to the day. So, if you pay off your existing loan on the 12th of the month, then you only pay interest up to that exact date. This is not the case with FHA.
With FHA mortgages, interest for the entire month is calculated on the first day of the month. So, if you pay off your loan on the 12th, interest for that entire month is still due. Since it takes a few days for payoffs to reach a lender, it’s always best to close around one week before the end of a given month.
For instance, if you refinance on March 23, the payoff will probably be received by your old lender on the 25th and will include interest through the 30th. That’s only a few extra days of interest paid. Alternatively, if you closed on March 30, the payment wouldn’t arrive until April 2 or 3. Since it’s past the first of the month, interest is due through April 31. That’s a whole extra month of mortgage interest that you would be paying, unnecessarily.
Rolling in closing costs
Most of the time, closing costs for an FHA loan can be rolled into the loan balance. Although this may result in no out-of-pocket expenses for a homeowner, it is still important to consider the costs involved with refinancing. Such expenses are dipping into the equity in your home, so it is still costing you money. Evaluate your true savings (considering closing costs) in deciding whether it’s worthwhile to refinance.
Purchasing a new home
Instead of refinancing your FHA mortgage, you may decide that it’s the right time to sell your existing home and buy an entirely new one.
Suzanne Plewes is a broker associate at RE/MAX Alliance. Write to 750 W. Eisenhower Blvd., Loveland, CO 80537, call 970.290.0373 or e-mail [email protected].
