Why Did FHA Mortgage Insurance Premium Lowered To 0.85%?
Why did FHA Mortgage Insurance Premium lowered to 0.85%? That’s a great question. There are conflicting opinions. Some people believe the government did it to help homeowners by decreasing their monthly mortgage payment. Some believe lower monthly mortgage payments translate to increased spending in the retail sectors which has a positive effect on the overall economy. Some people believe the banking and title fee lobby is so big they influenced the government to lower MIP or Mortgage Insurance Premium in order to spur another refi boom so the big banks can pad their pockets one more time.
Theory Why FHA Mortgage Insurance Premium Lowered To 0.85% This Year
There are all sorts of theories, and there is what the government claims to be the reason FHA Mortgage Insurance Premium Lowered To 0.85%. However, more importantly, it is good for the consumer. The MIP monthly rate prior to this change was 1.35% annually. FHA Mortgage Insurance Premium Lowered To 0.85% annually after MIP was lowered in April of 2015. What this translates to ½ point lower annually for the FHA mortgage borrower.
Benefits Of FHA Mortgage Insurance Premium Lowered To 0.85%
What this ½ a point does for a client who wants to refi their FHA mortgage from a house they just purchased 8 months is it now makes it possible. It affords a greater benefit than if the MIP rate were 1.35%. Here is a good example:
Joe just bought a house for $220,000. His interest rate is 4.5%.
He would like to refi his home so he will not only save monthly but so he can give his daughter a little extra money to spend while away at college.
He called his local mortgage guy Michael Doer. Unfortunately, at the time the rate was lower but not low enough to make sense at 4.25.
He called Michael Doerr a 2 months later in May of 2015. The rate was still around 4.25. However, the annual MIP factor had just dropped from 1.35% to .85%. So now Michael Doerr’s client is not only saving .25% but also .5% for .75% or 3 quarters of a point. Now refinancing Joe’s mortgage makes sense.
What Is FHA Mortgage Insurance Premium
FHA MIP unlike conforming PMI or Private Mortgage Insurance does not extinguish once the subject property has 20% or more equity. On a 30 year FHA mortgage PMI that is issued in this modern FHA era is charged to the borrower for life. So in the above case Joe will save ¾’s of a point on his mortgage for the remaining life of his loan. A mortgage refinance makes sense and is the smart thing to do.
Joe may not even need an appraisal, and does not need to supply any income documentation in that his refinance is consider a rate and term FHA Streamline.