About Government Refinance and Home Purchase Programs

Information and Updates on Government Mortgage Programs

The fairly recent changes in the way the FHA handles its mortgage insurance requirements have made the upfront costs of getting an FHA loan less expensive while making the monthly costs are higher. To recap, the one-time upfront mortgage insurance premium to get into an FHA loan dropped from 2.75% to 1%. On a $200k loan that is nearly a $4000 reduction in fees. However, the ongoing mortgage insurance (MI) fees on FHA 30-year fixed loans went up from .55% per year to 1.15% per year. So on that $200k loan the monthly MI went from about $92 per month up to $191 per month.

But with FHA 15 year mortgages the rules are different. With FHA 15 year mortgages the upfront fee remains 1% but the ongoing mortgage insurance is 0.25% per year for loans where the loan-to-value (LTV) is 90% or less. (This means the loan is 90% of the appraised value of the home or less). When the loan-to-value is more than 90% the mortgage insurance is .50%. So on that $200k loan the monthly MI fee would be $41 for lower LTV loans and about $82 for higher LTV loans. With the average rates on an FHA 15 year loan below 4% lately a 15 year loan might be worth looking into.

As an example:

A $200k 30 year fixed loan with PMI at a 5%+ rate (not an uncommon loan a few years back) would have a very similar monthly payment as the same loan at a 15 year 3% fixed rate with low PMI. But over the life of the 15 year loan the borrower would save more than $160k in interest payments alone when compared to the 30 year example. And that is not to mention thousands in saving in PMI payments and the fact that the home would be paid off twice as quickly.

15 year loans aren’t for everybody but they can be a terrific choice for many families. Contact us in the sidebar to look into your options on this subject.

Comments (0) Posted on 31 Oct