Questions and Answers About Interest Rate Rules
July 20, 2016
Many FHA loan applicants have questions where interest rates are concerned. The interest rate on your FHA mortgage is one of the most important factors when considering the long-term cost of your home loan. Do you know the facts about FHA mortgages and the interest rates on them? Here are some common questions on the topic of interest rates, and the answers:
What procedure does the FHA use to set interest rates on FHA mortgage loans and refinance loans?
Actually, the FHA actually does not set or regulate interest rates on FHA home loans, except to require that the rates be reasonable and customary. For certain FHA mortgages there are restrictions on how interest rates can be changed or modified. There are also FHA loan guidelines that regulate the purchase of discount points (paying up front for a lower rate) in order to help lower mortgage loan interest rates. According to the loan rules found in HUD 4000.1, FHA mortgage rates are negotiated between the lender and the borrower, the FHA does not have a part in that negotiation.
Can a borrower pay down the interest rate?
HUD 4000.1 says the purchase of “discount points” for this purpose is an option for those applying for FHA new purchase home loans and refinance loans. In certain cases a borrower may be able to include a limited number of discount points into the loan amount, but lender requirements may apply in addition to FHA loan rules.
Can I get a new purchase home loan that has adjustable rate FHA mortgage instead of a fixed rate?
FHA loans may feature the option for an adjustable rate mortgage (ARM) loan, depending on the lender. If your chosen lender offers an FHA ARM loan qualified borrowers can apply. It’s important to know that you also have the ability to refinance the ARM loan later on into a fixed rate FHA mortgage.
How much can the interest rate change on an FHA Adjustable Rate Mortgage Loan?
HUD 4000.1, page 688 has the rules in this area. The rulebook says, in part:
“The Mortgagee must not adjust the interest rate over the entire term of the Mortgage resulting in a change in either direction of more than five percentage points (500 bps) from the initial contract interest rate for 1-, 3- , and 5-year ARMs or six percentage points (600 bps) for 5-, 7-, and 10-year ARMs.”
Other standards and regulations may apply. Speak to your loan officer if you need clarification on this type of transaction.
What procedure does the FHA use to set interest rates on FHA mortgage loans and refinance loans?
Actually, the FHA actually does not set or regulate interest rates on FHA home loans, except to require that the rates be reasonable and customary. For certain FHA mortgages there are restrictions on how interest rates can be changed or modified. There are also FHA loan guidelines that regulate the purchase of discount points (paying up front for a lower rate) in order to help lower mortgage loan interest rates. According to the loan rules found in HUD 4000.1, FHA mortgage rates are negotiated between the lender and the borrower, the FHA does not have a part in that negotiation.
Can a borrower pay down the interest rate?
HUD 4000.1 says the purchase of “discount points” for this purpose is an option for those applying for FHA new purchase home loans and refinance loans. In certain cases a borrower may be able to include a limited number of discount points into the loan amount, but lender requirements may apply in addition to FHA loan rules.
Can I get a new purchase home loan that has adjustable rate FHA mortgage instead of a fixed rate?
FHA loans may feature the option for an adjustable rate mortgage (ARM) loan, depending on the lender. If your chosen lender offers an FHA ARM loan qualified borrowers can apply. It’s important to know that you also have the ability to refinance the ARM loan later on into a fixed rate FHA mortgage.
How much can the interest rate change on an FHA Adjustable Rate Mortgage Loan?
HUD 4000.1, page 688 has the rules in this area. The rulebook says, in part:
“The Mortgagee must not adjust the interest rate over the entire term of the Mortgage resulting in a change in either direction of more than five percentage points (500 bps) from the initial contract interest rate for 1-, 3- , and 5-year ARMs or six percentage points (600 bps) for 5-, 7-, and 10-year ARMs.”
Other standards and regulations may apply. Speak to your loan officer if you need clarification on this type of transaction.
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