In August 2010, President Obama signed a bill allowing HUD to charge an annual .85% of Annual Mortgage Insurance Premium for loans with a down payment equal to or greater than 5%. For loans with a down payment of less than 5% is charged an Annual Mortgage Insurance Premium of .90%. The rates are applied for loan term of 15 years or more. The Mortgage Insurance rates applied before President Obama signed the bill was at .50% and .55% respectively for loans payable in 15 years or more. And just after a few short months, an increase in Annual Mortgage Insurance Premium will take effect again.
Effective April 18th, 2011, the FHA annual mortgage insurance premiums will increase by one-quarter percent. While the Upfront Mortgage Insurance remains at 1%. Mortgage Insurance is a policy that protects lenders against losses that result from defaults on home mortgages. FHA requirements include mortgage insurance primarily for borrowers making a down payment of less than 20 percent.
Under the new term, borrowers will pay 1.15% of the mortgage amount instead of .90% as they have paid recently for 30 year loans with the standard minimum 3.5% down payment. FHA Commissioner David Stevens explained that “After careful consideration and analysis, we determined it was necessary to increase the annual mortgage insurance premium at this time in order to bolster the FHA's capital reserves and help private capital return to the housing market.” He added, “This quarter point increase in the annual MIP is a responsible step towards meeting the Congressionally mandated two percent reserve threshold, while allowing FHA to remain the most cost effective mortgage insurance option for borrowers with lower incomes and lower down payments."
The comparison of the old and new Mortgage Insurance Premiums is illustrated below:
| Mortgage Insurance Premiums | ||
| Loans > 15 years | ||
| UFMIP = 100bps | Annual Premium | |
| LTV (Loan-To-Value) | Through 4/17/2011* | On/After 4/18/2011** |
| ≤ 95.00 percent | 85 bps | 110 bps |
| > 95.00 percent | 90 bps | 115 bps |
| Loans ≤ 15 years | ||
| UFMIP = 100bps | Annual Premium | |
| LTV (Loan-To-Value) | Through 4/17/2011* | On/After 4/18/2011** |
| ≤ 90.00 percent | None | 25bps |
| > 90.00 percent | 25 bps | 50 bps |
| * For case numbers assigned on/before April 17, 2011 ** For case numbers assigned on/after April 18, 2011 | ||
| Table 1: Mortgage Insurance Premiums (Source: HUD Mortgagee Letter 11-10) | ||
| Example of Annual Mortgage Insurance Premium Increase 30-year Term | ||
| Average Loan | >95.0 percent LTV | |
| October 2010 90 bps | April 2011 115 bps | |
| Sale Price | $163,000 | $163,000 |
| Minimum Down payment (3.5%) | $5,705 | $5,705 |
| Mortgage Amount without UFMIP | $157,295 | $157,295 |
| FHA Annual MIP (monthly payment) | $118 | $151 |
| Change in payment (monthly) | | $33 |
| Table 2: Sample Computation of Monthly MIP (Source: HUD Mortgagee Letter 11-10) | ||
Below are some various examples using various loan amounts to illustrate how much the increase is going to effect the monthly Mortgage Insurance payment.
$100k base loan amount
.90 monthly MI= $75.00
1.15 monthly MI=$95.83
$150K base loan amount
.90 monthly MI=$112.50
1.15 monthly MI=$143.75
$200K base loan amount
.90 monthly MI=$150.00
1.15 monthly MI=$191.67
$250k base loan amount
.90 monthly MI= $187.50
1.15 monthly MI= $239.58
$300k base loan amount
.90 monthly MI=$225.00
1.15 monthly MI= $287.50
$350k base loan amount
.90 monthly MI=$262.50
1.15 monthly MI=$335.42
$400k base loan amount
.90 monthly MI=$300.00
1.15 monthly MI=$383.33
The insurance payment may be cancelled if the borrower has completed the payment of 20% of the total property amount.
The April 2011 mortgage insurance premium change will not affect the homeowners who already have FHA loans.
Starting April 18th, the increase can have a substantial impact on the monthly mortgage insurance. It will be more expensive for you to buy or refinance a home using FHA loans as a result of this change. Therefore, if you are looking for a home, it is better to get into contract before April 18, 2011 to save the .25% of loan amount every year (for at least five years).
If you need full details on Mortgage Insurance Premium new law, you may contact your loan officer.
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