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Home / Blog / FHA Loans / FHA’s Reduction of Mortgage Insurance Premiums Lowers Mortgage Payments, and Could Boost Home Sales

FHA’s Reduction of Mortgage Insurance Premiums Lowers Mortgage Payments, and Could Boost Home Sales

January 14, 2015 By Mary Catchur

FHA Lowers MIP Rates Which Could Boost Home Sales

On January 9, 2015, the Federal Housing Administration (FHA) officially announced that annual Mortgage Insurance Premium (MIP) rates will soon be reduced for FHA loans with terms greater than 15 years. See the chart below for the affect on future mortgage payments, which could help boost the housing market.

MIP Rate Reduced

Currently, FHA loans with a loan-to-value ratio greater than 95% require that the borrower pay monthly mortgage insurance based on an annual rate of 1.35%. Effective with FHA case numbers ordered on or after January 26, 2015, that rate will be reduced to .85%.

For example, an FHA loan of $150,000 currently has a monthly mortgage insurance premium of $168.75. (($150,000 x 1.35%)/12). With the reduction to .85%, the monthly payment will be reduced to $106.25, a savings of $62.50 monthly.

Rising MIP Rates Previously Made FHA Loans Less Attractive

Over the last 4 years, mortgage insurance premiums have consistently increased from .55% in 2010 to the current rate of 1.35% which went into effect in April 2013. This significant increase over the years has made the FHA program a less attractive and less affordable program for many home buyers. In addition to the increasing monthly MIP rates, changes to the rules requiring how long borrowers had to continue to pay those premiums also went into effect in 2013. Under those rules, many borrowers became obligated to pay those premiums over the 30-year life of the loan.

As a result, for borrowers with higher credit scores and low debt to income ratios, it has typically been more advantageous to finance with a conventional Fannie Mae or Freddie Mac loan with private mortgage insurance. Fannie Mae also recently announced a reduction in the required down payment from 5% to 3%, making the conventional loan even more attractive to first-time homebuyers.

Now, FHA Loans More Attractive with Lower MIP

With the new reduced mortgage insurance premiums many borrowers who could not qualify for an FHA loan because of the high mortgage insurance premiums, but didn’t qualify for a conventional loan because of more stringent credit scores and debt to income ratios, may now take a second look at the FHA loan program.

While the new rates are not effective until January 26, 2015, FHA has announced that they will temporarily approve case number cancellation requests for loans in the process that have already had case numbers assigned, but have not yet closed. This will allow borrowers whose loan is in the process to take advantage of the new lower mortgage insurance premium rates.

New Annual MIP Rates Amortization Term, Loan Amount, Loan-To-Value Ratio

The following table shows the existing and new annual MIP rates amortization term, base loan amount, and the loan-to-value ratio.

 TERM 30 YEARS

Base Loan≤625,500≤625,500

>625,500

>625,500

LTV≤95%>95%

≤95%

>95%

Previous1.30%1.35%

1.50%

1.55%

Current.80%.85%

1.00%

1.05%

TERM 15 YEARS

Base Loan≤625,500≤625,500

>625,500

>625,500

LTV≤95%>95%

≤95%

>95%

Previous.45%.70%

.70%

.95%

Current.45%.70%

.70%

.95%

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Filed Under: FHA Loans, Insurance Tagged With: FHA, Mortgage Insurance

Opinions, estimates, forecasts and other views contained in this page do not necessarily represent the views of Marimark Mortgage or its management and should not be construed as an offer to provide financing at the rates or terms mentioned. Due to market fluctuations, interest rates are subject to change at any time and without notice. Interest rates are also subject to credit and property approval. Although Marimark Mortgage attempts to provide reliable, useful information, it does not guarantee that the information is accurate, current or suitable for any particular purpose. Information from this page may be used with proper attribution.

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