Lower FHA Mortgage Insurance Premiums go into Effect

As announced earlier this year, the FHA (Federal Housing Administration) decreased the Yearly Mortgage Insurance Premium on Monday January 26th. There are two components to FHA Mortgage Insurance…the “Up-Front” Premium and the on-going “Yearly Premium”. The Up-Font Premium is 1.75% and this Premium is almost always added to the Loan Balance and therefore “Financed”. At this point, the FHA, the “Up-Front Premium” remains unchanged. However, the yearly Premium was reduced from 1.35% to 0.85%. This reduction is significant in two ways. First of all, it means lower Monthly Payments as this Premium is added to the regular “Principle and Interest” Payments on a a monthly basis. So if a Borrower’s Base Interest Rate was 4.00% (for example), adding the 1.35% Mortgage Insurance Premium had the effect of increasing the overall Rate to 5.35%. Based on the new reduced Premium the “overall Rate” would now be 4.85% (using the same 4.00% Base Rate). In addition to lowering the Monthly Payment amount, this decrease could also help a Borrower to better qualify for a Loan because the Lower Payment might offset possible “Debt to Income” challenges a Borrower might be facing if they were borrowing at the maximum of what they qualified for. New Horizon Mortgage Concepts has already had Clients benefit from this reduction in Mortgage Insurance and we look forward to continuing to explore ways in which this new Lending Guideline change might prove advantageous to our Clients.