FHFA's new refinancing could mean big savings for low-income homeowners
It becomes easier for low-income homeowners to refinance.
Thanks to a new initiative from the Federal Housing Finance Agency (FHFA), low-income borrowers with Fannie Mae or Freddie Mac loans will soon be able to get lower-cost refinancing that will significantly lower their monthly payments and interest rate.
According to the agency, the option saves borrowers an average of between $ 100 and $ 250 per month. This equates to a total savings of $ 2,000 to $ 3,000 per year.
Here's what you need to know about the program:
Check your eligibility for refinancing (May 3, 2021)
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How would the new refinancing option work?
The new refinancing option due to be available this summer is being referred to as RefiNow by Fannie Mae and Refi Possible by Freddie Mac. It would be aimed at lower income borrowers with compliant mortgages who could benefit from lower interest rates and payments.
Those who qualify would reduce their monthly mortgage payment by at least $ 50 and lower their interest rate by 50 basis points or more (for example, 3.5% versus 3.0%).
Those who qualify would cut their monthly payment by at least $ 50 and their interest rate by 50 basis points or more.
Some borrowers could also get a $ 500 loan to cover the valuation and waived the negative market refinancing fee that charges 0.50% for loans of $ 125,000 or more.
These types of waivers and guaranteed discounts are not available on a typical refinancing. Any lowering of the interest rate or payment is directly related to the qualifications of the borrower – their creditworthiness, their debt to income ratio, their home equity and much more.
In general, the better a borrower's credit, the more they can lower their costs.
Check your eligibility for refinancing (May 3, 2021)
Potential savings for homeowners
The potential savings from the RefiNow and Refi Possible programs could be enormous.
According to the FHFA, it should average $ 100 to $ 250 per month. But depending on the borrower, it can also be larger or smaller.
Here's an example: suppose you took out a $ 200,000 loan in January 2018 at 5% interest. The loan was delivered with a monthly payment of $ 1,073. You've been paying back your balance easily for three years and currently have around $ 188,000 left on the loan.
When you qualify for the program, you can refinance yourself into a new 30 year loan with an interest rate of 4.5%. This would reduce your monthly payment to $ 952 per month – a difference of around $ 120 or more than $ 1,440 saved over the course of a year.
This, of course, does not include the savings from the assessment waiver ($ 500) and the adverse market fee.
The negative market fee calculates 50 basis points (0.50%) of all loan balances over $ 125,000. So for a $ 188,000 loan, you'll pay $ 940. This means that refinancing will be much cheaper for homeowners who qualify for the fee waiver.
Who is eligible for the new refinancing program?
To qualify for the new low income refinance program, you will need a loan guaranteed by either Fannie Mae or Freddie Mac. If you're not sure if your loan falls into this category, use Fannie and Freddie's lookup tools.
Further requirements are:
Your income must be at or below 80% of the median income in the region. You must not have missed any mortgage payments in the past six months and no more than one in the past 12 months Loan-to-Value Ratio cannot be greater than 97% Debt-Income Ratio Must be no higher than 65% Your credit score must be 620 or higher
Your home must also be a single-family, one-unit home that you use as your primary residence (no investment property or apartment buildings / maisonettes).
Why is the FHFA aimed at low-income borrowers?
Refinancing was very popular last year, especially as mortgage rates were near historic lows. However, according to the FHFA, lower-income homeowners did not have the same opportunities to refinance their homes.
"Over the past year there has been an increase in refinancing, but more than 2 million low-income families failed to refinance record-low mortgage rates," said Mark Calabria, FHFA director.
"This new refinancing option is designed to help eligible borrowers who have not yet refinanced save between $ 1,200 and $ 3,000 annually on their mortgage payments."
"It's a very homeowner-friendly move that aims to help people stay in their homes and give them more financial freedom." –Jeff Taylor, co-founder of Mphasis Digital Risk
The program can also help low-income families struggling due to the pandemic by freeing up cash flow and reducing their monthly financial burden. In some cases, it could even help borrowers who have lost their luck keep their homes.
"The money saved from the refinance can be used to help people who have suffered job loss or financial impairment since the pandemic began," said Jeff Taylor, co-founder of Mphasis Digital Risk and a board member of the Mortgage Bankers Association.
"It's a very homeowner-friendly move that is meant to help people stay in their homes and give them more financial freedom," he says.
When will the new refinancing program be available?
There is no set start date for the new program, but the FHFA has announced that it will be available this summer. This could mean that qualified borrowers could apply as early as June.
Only time will tell and we will keep you updated as soon as more details about the RefiNow and Refi Possible programs become known.
Should you wait to refinance until this program becomes available?
There's no way to perfectly plan your refinance, but for lower-income borrowers, the FHFA's new initiative may be worth the wait. With the guaranteed interest rate cut, reduced monthly payment, and waiver of fees, the savings could be substantial.
If you are concerned about rising interest rates, you can apply for refinancing now and choose an extended interest freeze. That way, you can secure today's historically low prices while you wait for summer.
You can also speak to a loan officer or mortgage broker for more specific advice. They can guide you in the best possible way for your financial situation.
Check your new tariff (May 3, 2021)