The Federal Housing Authority, or FHA for short, is increasing the Mortgage Insurance Premiums on April 18, 2011. The changes to MIP will impact standard FHA loan programs. To understand how the premium increases will impact various loans you need to know a few acronyms.

Understanding Mortgage Language

LTV = Loan To Value ratio. This is a  ratio of the value of your home vs. how much you are borrowing. If you home is worth $100,000 and you borrow $85,000 then you have an 85% LTV.

MIP = Mortgage Insurance Premium. If you are taking out a home mortgage and are putting down less than 20% (so your LTV is 80%+) you will most likely be required pay for an insurance policy that protects the lender in the case that you default on your loan.

Why FHA is Increasing Mortgage Insurance Premiums

So with that being said, FHA is raising MIP for borrowers, most likely because as with all insurance policies, premiums go up when more and more lenders cash in their policies on defult loans. Considering the number of foreclosures, and therefore the number of mortgage insurance policies that have been paid out, it makes sense that premiums go up. Just like flood insurance premiums go up after a flood.

How Much FHA is Increasing Mortgage Insurance Premiums

1. These changes are effective April 18^th, 2011.

2. The Annual Insurance Premium will increase .25% for standard forward mortgages*. The Upfront Mortgage Insurance** remains at 1.00%. * Forward mortgage: A mortgage that is secured by the property at time of purchase.  **Upfront Mortgage Insurance: The Mortgage Insurance Premium (MIP) that lenders must remit within 10 calendar days of the mortgage closing or disbursement date, whichever is later (Mortgagee Letter 2005-28).

3. The Annual Premium was .90% is now 1.15% for LTVs GREATER than 95% on 30-year loans

4. The Annual Premium was .85% is now 1.10% for LTVs EQUAL to or LESS than 95% on 30-year loans

5. The Annual Premium  was .25% is now .50% for LTVs GREATER than 90% on 15-year loans

6. The Annual Premium was 0% is now .25% for LTVs EQUAL to or LESS than 90% on 15-year loans

To illustrate, on a home priced at $163,000 with 3.5% down, the monthly payment was $118 per month and is now $151 per month– a $33 per month increase.

If you have questions about how this change could impact your mortgage call me at 513-518-1140.