This BLOG On Benefits Of 15 Year FHA Loan Versus 30 Year Terms Was UPDATED On January 25th, 2019
FHA mortgage insurance premium is a large portion of the monthly mortgage payments.
HUD, the parent of FHA, sets all FHA Guidelines including those of mortgage insurance on all FHA Loans.
- Borrowers with 30-year fixed-rate FHA Loans need to pay an annual FHA Mortgage Insurance Premium of 0.85% over the life of the loan
- HUD also requires a one time upfront FHA Mortgage Insurance Premium of 1.75% for all home purchases and refinances
In this article, we will cover and discuss the benefits of a 15-year versus 30-year fixed-rate FHA loans.
FHA Mortgage Insurance Premium
The annual FHA Mortgage Insurance Premium depends on several factors which are the following:
- Term of the loan
- Loan To Value
Whether a home buyer buys a $50,000 home or $294,515 home with an FHA Loans, the 1.75% UFMIP needs to be paid.
15 Versus 30 Year With FHA Annual MIP Rate
FHA Annual Mortgage Insurance Rate is a little more complex.
FHA Home Loans With Greater Than 15 Year Terms
| Base Loan Amt. | LTV | Annual MIP |
|---|---|---|
| ≤$625,500 | ≤95.00% | 80 bps (0.80%) |
| ≤$625,500 | >95.00% | 85 bps (0.85%) |
| >$625,500 | ≤95.00% | 100 bps (1.00%) |
| >$625,500 | >95.00% | 105 bps (1.05%) |
FHA Loans With Less And/Or Equal To 15 Year Terms
| Base Loan Amt. | LTV | Annual MIP |
|---|---|---|
| ≤$625,500 | ≤90.00% | 45 bps (0.45%) |
| ≤$625,500 | >90.00% | 70 bps (0.70%) |
| >$625,500 | ≤78.00% | 45 bps (0.45%) |
| >$625,500 | 78.01% – 90.00% | 70 bps (0.70%) |
| >$625,500 | >90.00% | 95 bps (0.95%) |
Policy Of 15 Year Versus 30 Year Fixed Rate Mortgages
The HUD 4000.1 FHA Handbook states all of FHA Guidelines:
- For a 30 year fixed rate mortgage loan with a 3.5% down payment, the annual FHA mortgage insurance premium is 0.85% of the balance of FHA insured mortgage loan for the life of the FHA loan
- With 30-year fixed-rate FHA insured mortgage loans, borrowers cannot cancel the FHA mortgage insurance premium no matter what loan to value it is
- New FHA guidelines often change without notice
- For those who want to save on FHA mortgage insurance premium, they can opt to consider a 15-year loan
There are some options in saving FHA mortgage insurance premiums for qualified mortgage loan borrowers.
15 Year FHA loan
Home Buyers who choose to pick a 15 year FHA loan and can put 10% down payment, they can get some leeway with regards to FHA mortgage insurance premium.
- The first advantage is the annual FHA mortgage insurance premium will get reduced from 0.85% of mortgage balance to 0.45% of your mortgage balance
- For 30 year FHA loan programs, the FHA mortgage insurance premium is effective for the life of the FHA insured mortgage loan
- However, on 15 year FHA loan programs mortgage insurance premium can be canceled after 11 years from the closing of your 15 year FHA loan if and only if the loan to value is at 78% loan to value or lower
Prior to April of 2013, 15-year FHA loan programs did not have an FHA mortgage insurance premium required.
15 Year FHA Loan Versus 30 Year FHA Loan
Prior to April 2013, there was no FHA mortgage insurance premium required on a 15 year FHA loan program.
- Now, FHA mortgage insurance premium will cancel and borrowers do not have to pay monthly FHA mortgage insurance premium after 11 years if your loan to value is at 78% or less
- As mentioned earlier, FHA mortgage insurance premium is 0.85% of the FHA mortgage balance amount every year for the life of the loan if you put 3.5% down payment on a 30 year FHA loan
- However, if the home buyer put a 5.0%down payment on a 30 year FHA loan, FHA mortgage insurance premium reduces slightly to 1.30% of your mortgage balance for the life of the loan
- Buyers puttin a 10% down payment on a 15 year FHA loan, FHA mortgage insurance premium drastically reduces to 0.45% of mortgage balance for the life of the 15 year FHA loan
Plus after 11 years, borrowers can cancel FHA mortgage insurance premium if the loan to value is at 78% or lower.
Benefits Of 15 Year Versus 30 Year Mortgage With Lower Rates
15 year FHA loan program mortgage rates are substantially lower than 30 year FHA loan programs.
- Benefits Of 15 Year FHA Loan Versus 30 Year is that with 15 year FHA Loans it is on the average 0.50% lower than 30 year FHA loan mortgage rates
Mortgage Borrowers who need to qualify with a direct lender with no lender overlays can contact us at Gustan Cho Associates at 800-900-8569 or text us for faster response. Or email us at gcho@gustancho.com.
