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Refinancing

FHA Mortgage Insurance Might Get Cheaper This Year

Many insiders are confidently predicting a big cut in the Federal Housing Administration’s (FHA’s) annual mortgage insurance rates.

FHA borrowers currently pay 0.85% annually in mortgage insurance premiums (MIP). That’s $1,700 per year, or $140 per month, on a $200,000 mortgage.

So it’s no wonder a possible MIP rate cut is big news. It could help new home buyers and refinancing homeowners save big on their housing payments. Real dollars in your pocket savings, prior to any debt consolidation in your refinance!

What an MIP Reduction Could Mean For You 

There’s good news and bad news.

The bad news is that if you already have an FHA loan if and when the reduction takes effect, you won’t see any savings. You would have to refinance into a new FHA loan to see the reduction.

The good news is that if you haven’t applied for an FHA loan yet if/when the cut is announced, you can likely take advantage of the new, lower fees.

But just how much would home buyers and refinancers stand to save? A 25-basis-point reduction means MIP rates would fall by 0.25%. So, you’d be paying 0.6% of your loan balance each year instead of the 0.85% that nearly all FHA borrowers now pay now. These mortgage insurance rates are calculated annually but charged monthly.

Example: 0.25% MIP rate cut

Let’s say you plan to borrow $200,000 with an FHA loan. Your MIP rate at current levels would be 0.85%, making an annual charge of $1,700 — or $140 per month.

Now let’s assume the new MIP rate falls to 0.6%.

Your annual charge tumbles to $1,200. And your new monthly MIP cost would be exactly $100 per month. That’s a saving of $500 a year, which few of us would sneeze at. But there’s a possibility that the savings could be even bigger!

Example: 0.50% MIP rate cut

American Banker wondered whether the Biden administration might “potentially go even further.”

So how does the math work if annual MIP rates were to be cut a little more — to 0.5%? Assuming the same $200,000 loan, a 0.5% rate would reduce the annual payment to $1,000. And that would make the monthly payment just $83 versus $140 per month at current levels. That would save you $700 a year over your current payment.

Refinance Considerations

If and when this occurs, how do you get the current FHA mortgage benefit? Simple, a full refinance.  In most cases, it’s time.  Rates, current financial conditions (debt), and the length you have had your current mortgage means it is time for a mortgage overview and financial checkup!