At a glance: The FHA annual mortgage insurance premium for 2015 is being reduced. This change takes effect on January 26, 2015. The new annual MIP for most FHA borrowers will be 0.85% of the base loan amount. This change only applies to 30-year mortgages; 15-year loans are unaffected.
On January 8, the Department of Housing and Urban Development (HUD) announced they would reduce the annual mortgage insurance premium (MIP) that borrowers have to pay when using an FHA loan. This reversal follows a series of MIP increases made over the last few years.
This change only affects the annual premium for FHA-insured home loans. The upfront MIP was not changed for 2015. Additionally, these reductions only apply to 30-year mortgages (or, technically, anything “greater than 15 years”). This rate reduction does not apply to 15-year mortgage loans.
Bottom line: For 30-year mortgages with the standard minimum down payment of 3.5%, the FHA annual MIP rate was reduced from 1.35% of the loan balance to 0.85% of the balance.
Annual FHA Mortgage Insurance Premiums for 2015
The table below shows how the annual FHA mortgage insurance premiums are being reduced. The amounts shown in the “New MIP” column will apply to loans with case numbers assigned on or after January 26, 2015.
FHA Loans Greater Than 15 Years
|Base Loan Amt.||LTV||Previous MIP||New MIP|
|≤$625,500||≤95.00%||130 bps (1.30%)||80 bps (0.80%)|
|≤$625,500||>95.00%||135 bps (1.35%)||85 bps (0.85%)|
|>$625,500||≤95.00%||150 bps (1.50%)||100 bps (1.00%)|
|>$625,500||>95.00%||155 bps (1.55%)||105 bps (1.05%)|
FHA Loans Less Than or Equal to 15 Years
|Base Loan Amt.||LTV||MIP|
|≤$625,500||≤90.00%||45 bps (0.45%)|
|≤$625,500||>90.00%||70 bps (0.70%)|
|>$625,500||≤78.00%||45 bps (0.45%)|
|>$625,500||78.01% – 90.00%||70 bps (0.70%)|
|>$625,500||>90.00%||95 bps (0.95%)|
Again, these changes only affect the FHA annual mortgage insurance premiums for 2015, and only for loans greater than 15 years in length. The upfront premium (which borrowers are also required to pay) will remain at its current level of 1.75% of the base loan amount. Additionally, the MIP rates for 15-year loans will remain unchanged as shown in the table above.
These new rates were announced in HUD Mortgagee Letter 2015-01, published on January 9.
How to Read The MIP Tables
To make these numbers more accessible, we have split them into two tables. The first table shown above applies to FHA loans greater than 15 years in length (i.e., a standard 30-year mortgage). The second table applies to the 15-year home loan. So the first step in determining your annual FHA mortgage insurance premium is to find the appropriate table based on the length of your repayment term.
Next, you would need to find the relevant loan size. Most FHA borrowers will fall into the ≤$625,500 category, because the maximum FHA loan limit for a single-family home is $625,500.
Lastly, you would find the appropriate table row based on your LTV, or loan-to-value ratio. Most FHA borrowers fall into the ≥95.00% LTV category, because they choose the minimum 3.5% down payment. (This relatively low down payment is the primary advantage of using the FHA program in the first place.) Borrowers who put down 3.5% end up with an LTV of 96.5%, which puts them in the ≥95% category.
Example: For a 30-year FHA loan with a down payment of 3.5%, the new annual mortgage insurance premium would be 0.85% (after the change takes effect on January 26, 2015).
According to HUD, the lower annual MIP rates are expected to save more than two million homeowners an average of $900 annually. Additionally, the reduced premiums could spur 250,000 new home buyers to purchase their first house over the next three years.
Added Insurance: The Price You Pay for a Higher LTV
FHA isn’t the only type of home loan that requires extra insurance. Generally speaking, any time the loan-to-value ratio exceeds 80%, some form of mortgage insurance will be required. This insurance protects the lender — not the borrower.
In the case of FHA loans, the premium is paid to the government via the Federal Housing Administration. That’s partly how they fund their mortgage insurance program.Without these premiums, there would be no FHA program and therefore fewer loan options for borrowers.
With a conventional home loan, the mortgage insurance premium is paid to a third-party insurer in the private sector (though it usually gets “rolled” into the borrower’s monthly payment).
To avoid this added cost, the LTV ratio for any single loan must be kept at or below 80%. This can be accomplished by making a down payment of 20% or higher, or by combining two loans so that neither of them has an LTV higher than 80% (the so-called “piggyback” strategy).
Learn more: This article provides a basic overview of FHA annual mortgage insurance premium (MIP) rates for 2015. The MIP premiums for this program are set by the Department of Housing and Urban Development. To learn more about FHA loans and mortgage insurance, you can refer to the official HUD website at www.HUD.gov. To learn more about the reduced rates for 2015, do a Google search for “Mortgagee Letter 2015-01.” Additionally, lenders and borrowers can call the FHA Resource Center at 1-800-225-5342.