The Federal Housing Administration (FHA) has announced that a new premium structure for FHA-insured single family mortgage loans will go into effect April 1st and June 1st. The new premium structure was developed to bolster capital reserves and protect FHA’s Mutual Mortgage Insurance (MMI) Fund.
Beginning April 1st, FHA will increase the annual mortgage insurance premium (MIP) for home loans. FHA is set to increase its annual MIP 0.10% for loans that fall below $625,000. This change is effective for case numbers assigned on or after April 1, 2012. The annual MIP for loans above $625,000 is set to increase 0.35%. This change is effective for case numbers assigned on or after June 1, 2012.
The UFMIP will also increase from 1% to 1.75% of the base loan amount. FHA has stated that this increase will apply regardless of the amortization term or LTV ratio. This change is effective for case numbers assigned on or after April 1, 2012.
After hearing this news, many are curious as to how these MIP increases will impact clients. Currently, if the borrower receives a base loan amount of $100,000 with an interest rate of 4%, a monthly MIP rate of 1.15%,upfront MIP of 1.00%, and the principal and interest mortgage insurance would be equivalent to $482.19 (P & I) plus $95.83 (MI). This would make the borrowers total monthly payment $578.02. However, with the MIP increase, if the borrower receives a base loan amount of $100,000 with an interest rate of 4%, the monthly MIP rate would become 1.25%, the upfront MIP would become 1.75%, and the principal and interest mortgage insurance would be equivalent to $485.72 (P & I) plus $104.17 (MI). This would bring the borrowers total monthly payment to $589.94. However, borrowers already in an FHA-insured mortgage, Home Equity Conversion Mortgage (HECM), and special loan programs outlined in FHA’s forthcoming Mortgage Letter will not be impacted by the pricing changes.
According to FHA, these premium changes will enable FHA to contribute more than $1 billion to its Mutual Mortgage Insurance (MMI) Fund, based on current volume projections through Fiscal Year 2013.
For more information regarding FHA’s new premium structure, visit the U.S. Department of Housing and Urban Development’s website for the press release.