Effective October 4th, 2010, FHA will lower the upfront mortgage insurance premium (MIP) and raise the annual mortgage premium. Upfront MIP will decrease from 2.25% of the loan amount to 1 percent. The annual mortgage insurance premium, paid monthly on FHA loans over 15 years, will change from 55 basis points to 85 or 90 basis points. The reason for the change is to prop up the FHA Mutual Mortgage Insurance Fund which is “running on fumes” and needs to be gassed up.
Under the current rules a $200,000 loan has a $4,500 upfront MIP and a monthly premium of $91.67. Currently the monthly MIP is computed by taking the loan balance of $200,000 multiplying by 0.0055 and dividing by 12. The good news under the new rules is that the upfront MIP will decrease by $2,500, however the monthly MIP will increase by $60 or $70; an annual increase of $720-$840 per year. It is not known at this point if borrower’s who wish to refinance an existing FHA mortgage will receive a credit towards the upfront MIP on a new mortgage.
Is it better to wait or go forward now? As always, have your mortgage consultant do the math to see what best suits you. The logic of reducing upfront fees and increasing monthly fees, when there is a pressing need to increase a reserve fund, escapes me. It must be because I did not go to Harvard and have spent most of my life in the private sector.
Feel free to call or email with any questions or comments.
Next Week: New FHA program for borrowers with negative equity.
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