Thursday, June 04, 2015

It appears South Carolina Finance Specialist Matthew Frankel at The Motley Fool (fool.com) isn't very foolish at all. I was drawn to his blog addressing the impact of recently announced mortgage insurance premium reductions from 1.35 percent of a loan's value per year to 0.85 percent.

Frankel notes that, "FHA mortgage insurance" actually refers to two different things. Buyers pay an upfront premium when they buy a house, which is currently 1.75 percent of the purchase price.

He says this premium can usually be rolled into the mortgage, so buyers don't have to actually pay it at closing. The other part of FHA mortgage insurance is the annual premium, which is the part that is being cut from 1.35 percent to 0.85 percent.

This is assessed as a percentage of the loan balance each year, and is tacked on to the borrower's monthly payments.

So, Frankel says a borrower with a $200,000, 30-year FHA mortgage would see their annual premium drop from $2,700 to $1,700, which would save them about $83 per month on their mortgage payment. Over the life of a 30-year loan, the savings could add up to nearly $20,000.

In early May, mymortgageinsider.com reported that to further entice FHA mortgage holders, FHA offers upfront mortgage insurance premium (upfront MIP) refunds. A portion of the premium paid when the original FHA loan closed will be applied to the upfront MIP on a new FHA loan.

The site says if a loan was endorsed by FHA on or before May 31, 2009, the mortgage holder was eligible for reduced premiums of .01 percent upfront MI and .55 percent monthly MI. (Endorsed means that the loan was closed and that FHA insured the loan.)

In most cases, FHA loans needed to close a few weeks before this date to be endorsed by FHA in time. If a homeowner closed their FHA loan in May of 2009, they can have their lender pull a “case query” on FHA’s website to see when the loan was endorsed.

If the loan was not endorsed in time, the homeowner is subject to regular mortgage insurance premiums, which are 1.75 percent upfront and usually 1.30 percent to 1.35 percent of the loan amount per year, paid each month in 12 equal installments.

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