My morning coffee is typically spent listening to KOA radio out of Denver. KOA has a report each weekday morning from their business reporter (Greg Moss) who is actually affiliated with one of the Denver TV stations.
Greg came on this morning and did a generic push for people to refinance their “toxic” ARM loans into “low cost” FHA Fixed Rate Loans. Wow!
Certainly, this strategy will make sense for some borrowers. This will typically be the sub-prime borrower with a loan adjusting to an interest rate that simply makes no sense. Greg did not limit his advice this way. In fact, his piece made it sound to me like this would make sense for just about anyone.
IT DOES NOT! No matter how many ads you hear selling it the FHA Fixed Rate mortgage is a very expensive option to most borrowers.
First of all, a Fixed Rate mortgage – by definition – is more expensive in its payment than is a comparable interest only mortgage. Next, there is a substantial up-front Mortgage Insurance Premium incurred when you switch from conventional financing to an FHA loan. Next, there is a substantial monthly mortgage insurance payment included in your FHA loan. Finally, the fees associated with an FHA loan (disclosed and undisclosed) tend to be more expensive than other financing.
Just like most decisions regarding mortgages and financial planning, a generic suggestion that an FHA Fixed Rate loan is everyone’s answer is inappropriate. When it comes to mortgages, consultation with a Mortgage Planner you are confident in is critical.
Greg, I enjoy listening to you each morning. I will suggest that your comments this morning were way to all-encompassing and will likely hurt as many of your listeners as it helps.
