Mortgage Insurance Premium to Increase

Effective April 1, 2012 (and no, it ins't a joke!), the Federal Housing Authority (FHA) is increasing the up-front mortgage insurance premium (MIP) by 75 basis points (.75 percent) (BPS) and annual mortgage insurance premiums will increase 10 basis points (.10 percent). This is the fourth time in two years that the FHA has raised the MIP. The MIP is a fee added to loans to protect lenders from losses on loans that default. Translation? If you pay a MIP, you are subsidizing the losses of people who default on their loans. The FHA generally requires MIP for borrowers making a downpayment of less than 20 percent. For 15-year loans, no MIP will be charged if the downpayment is 10 percent or greater.

Now:
30-year mortgage with LTV> 95 percent will have a MIP of 115 BPS per year;
30-year mortgage with LTV<= 95 percent will have a MIP of 110 BPS per year (and the annual premiums will be cancelled when the loan reaches 78 percent and the mortgagor has paid the annual premiums for at least five years);
15-year mortgages with LTV> 90 percent will have a MIP of 50 BPS per year (and the annual premiums be be cancelled when the loan reaches 78 percent LTV);
15-year mortgages with LTV<= 90 percent will not have a MIP;
Loans > $625,000 will have an additional 65 BPS (.65 percent) added to their annual MIP.

To put that into dollar terms, the new MIP will add $1,500 to a $200,000 loan, plus an annual increase of $200 in annual mortgage insurance premiums.

To calculate the monthly MIP on your FHA loan, multiply your initial loan amount by the MIP and divide by 12.

Want to avoid this? Get your loan application in before April 1 because existing loans will not be effected by this increase.