According to the FHA official site, streamline refinancing for FHA home loans has been offered since the 1980s. While “streamline refinancing” refers to the amount of paperwork involved with processing the new home loan, it is not meant to imply there are no costs involved with the refinancing loan.
FHA streamline refinancing loans for borrowers with existing FHA mortgages must result in either a lower interest rate, a lower monthly payment, or both. Exceptions are made when the borrower is refinancing into an FHA streamline mortgage from an Adjustable Rate Mortgage, also known as an ARM loan.
Unlike FHA cash-out refinancing, no money is permitted to go to the borrower as part of the streamline loan. That means no “debt consolidation” or other purposes are permitted with FHA streamline loans–these loans are only meant to reduce interest rate and/or interest payments.
While there are costs associated with FHA Streamline loans, some lenders may offer a “no cost” option, which simply means the costs are included in the loan amount. The phrase “no cost” means no out-of-pocket expenses are charged–they are all rolled into the FHA refinancing loan amount.
This can be done by raising the interest rate–the sort of premium that would not be levied if the borrower had paid cash for those expenses. In such cases, the FHA official site says “From this premium, the lender pays any closing costs that are incurred on the transaction. FHA does not allow lenders to include closing costs in the new mortgage amount of a streamline refinance.”