Re: Info on FHA Mortgage Payment Reduction Program - Posted by Dave T

Posted by Dave T on October 31, 1998 at 21:43:46:

I am not familiar with this specific program but I would like to address some generalities that probably apply here.

If you have had this mortgage in place for some length of time then you will achieve a lower monthly mortgage payment in two ways. First by lowering your interest rate you lower your monthly payment. Secondly by lengthening the term of your loan, you lower your monthly mortgage payment. If your original mortgage was a 30 year fixed with 22 years to go, then refinancing the remaining principal balance for another 30 years will lower your monthly payments. If, on top of lengthening the term, you also apply a lower interest rate, you may see some dramatic reduction in your monthly payment.

Now this loan is not free. The lender will add the closing costs and loan fees to the principal balance you are refinancing. True, you will not have any “out of pocket” expense but you are just financing your closing costs for 30 years and may end up paying those closing costs 2.5 to 3 time over if you pay off the mortgage in 30 years.

Generally speaking, if you plan to keep the property for more than five years, it is better to pay the out of pocket expenses out of pocket and not include them in your mortgage.

Does this program make sense for you? Simply divide you monthly savings into the total “out of pocket costs”. The result is the number of months that it will take to recoup your loan costs. If you plan to keep the property longer that the number of months to recoup your costs, then go for it.