UPDATE August 10, 2010: HUD just announced they are delaying the changes to FHA mortgage insurance until case numbers issued on or after October 4, 2010.
Federal Housing Commissioner David Stevens has issued a "Special Edition" press release confirming that FHA mortgage insurance will be adjusting on all case numbers beginning next month.
"It is our intention that effective on September 7, 2010, FHA's upfront mortgage insurance premium will be adjusted down to 100 basis points on all amortization terms and the annual mortgage insurance premium will increase to 85-90 basis points on amortizing terms greater than 15 years…"
Currently upfront mortgage insurance on an FHA insured loan is 2.25%. Effective on new case numbers September 7, 2010 October 4, 2010 and later, the new upfront mortgage insurance premium will be 1.00%. On a $400,000 loan the 2.25% premium pencils out to $9,000 which is typically financed (added to the FHA base loan amount); in a month the upfront premium will be reduced to $4,000.
At first, this sounds great–however, there's a trade-off. The annual mortgage insurance (paid monthly) is increasing to 85-90 basis points (currently it's 50-55%). An increase of 0.3% of the annual premium will increase the monthly payment (based on a $400,000 loan amount) to $300 (0.90 x $400k =$3,600/12) from $183 (0.55 x $400k =$2,200/12) an increase of $116.47 per month.
Using an interest rate of 4.25% and a based loan amount of $400,000; it looks like this:
FHA Case Number BEFORE September 7 October 10, 2010:
$400,000 plus $9,000 = $409,000 amortized for 30 years at 4.25% = principal and interest of $2012.03 plus the annual mortgage insurance of $183 = $2,195.03
FHA Case Number issued September 7 October 4, 2010 and after:
$400,000 plus $4,000 = $404,000 amortized for 30 years at 4.25% = principal and interest of $1,987.44 plus the annual mortgage insurance of $300 = $2,287.44.
The new FHA mortgage insurance premiums have an increase in payment of $92.41 based on this example. This impacts both purchases and refinances using FHA insured mortgages.
Stevens acknowledges that this is "short notice" however this shouldn't surprise anyone who's been a subscriber to The Mortgage Porter, this has been in the works. A mortgagee letter is expected to follow soon.
Mortgage Master Service Corporation is a Direct Endorsed HUD approved lender. I've been originating FHA insured loans for over ten years. If I can help you with your mortgage needs on a home located in Washington, please contact me.