The latest mortgage interest premium reduction dropped from 1.35% to .85%. A half of a percent can help homeowners save a lot of money annually and monthly. For homeowners that have an FHA loan, this is a great opportunity to refinance and lower your payment even if you’re not lowering your interest rate. Think of this reduction as a small gift and something you should take in stride with great care. Make sure you are in a situation where you have been keeping up with your payments to ensure the lender that they will benefit from this refinance as well. A default or foreclosure is something no one wants. Before I speak on the mortgage insurance premium reduction, here are some foundational things you should know about mortgage insurance.
- A break down of the FHA Streamline Refinance Program
- FHA Refinance My Mortgage – Answers to Questions You Just Might Ask
How did Mortgage Insurance Start?
Mortgage insurance began in the 1880s when The Great Depression made it relevant. Think of a volcano heating the magma and releasing it out to form hot lava. That’s pretty much what happened to the housing market during the depression; everyone scrambled to get away from the heat. Lenders didn’t have protection from homeowners defaulting on their loans. The Federal Housing Administration (FHA) and Veterans Administration (VA) was created to help the government overcome the struggling housing market. Housing became more affordable and secure, and the lenders were protected in the case of defaults and foreclosures.
Mortgage Insurance Premium for FHA Borrowers
You probably know since you’ve been under FHA loans that conventional loans require a higher credit score and a higher down payment. Upfront this is quite expensive, but there is also a downside to FHA loans. While you pay 3.5% to 10% on the average FHA loan down payment, this means you’ll pay a mortgage insurance premium for the duration of the mortgage. This is an additional cost that you pay in an upfront mortgage insurance premium that’s either paid at the closing of your home or added onto the mortgage balance. The other fee associated with the FHA loan is the annual premium which is actually paid monthly in your mortgage payments. The best case scenario for FHA loans is closing the house with a 10% down payment. You’ll cut down on the time you’ll pay mortgage insurance premiums because you will build enough equity as collateral in case of a severe financial crisis where you may default. Also, the lender can use your equity to keep the flames away. Now, that you know a bit more about mortgage insurance premiums, here are some details regarding the reductions.
What Does the MIP Reduction Entail?
First of all, the Mortgage Insurance Premium reduction was spoken months back in speech by President Barack Obama. He spoke of MIP reduction that would go from 1.35% to .85%. That would be, on average, almost $900 saved annually for those under FHA loans. Of course, this only helps for people that are financially responsible. More people are held accountable for keeping up with their payments, so they will receive benefits only by being conscious spenders. This helps the economy by making people more focused on priorities and decreasing excess spending on wants rather than needs.
Who is impacted by the MIP Drop?
According to Housing and Urban Development Secretary Julián Castro, the MIP drop will affect 800,000 current homeowners under FHA. Of course, this does not take into account a surplus of people who may buy a home during spring and early summer season. Additionally, they may spark a small refinance boom due to the Mortgage Insurance Premium reduction.
Do your research to find out how the MIP reduction may or may not provide any benefits to your housing situation. See if there are any changes in the market that could undermine your ultimate saving goals. Don’t be afraid to seek out your lender for advice as well to help you come to a sound decision about your mortgage.