Monday April 18 is the day mortgage insurance (MI) increases for FHA loans, a move that may drive more home loan borrowers with less than 20% equity into private mortgage insurance products which may end up being cheaper. Consumers need to talk to their mortgage advisors to explore which option—FHA or private mortgage insurance—is most cost effective.
As for FHA mortgage insurance hikes, loans started on or after Monday will be subject to annual mortgage insurance of 110 basis points (or 1.1%) for loans equal or less than 95% of a homes value, and loans over 95% of a home’s value will have a 115 basis point (or 1.15%) fee. Up-front premiums due at closing will continue at 1%, and borrowers will still be able to finance that initial 1%.
FHA specialists point out that even with the increase in the annual premium, FHA will continue to be a viable option for homebuyers, with the more lenient credit qualifying, and lower FICO scores when compared to conventional financing at 95% for many cases. But it seems that private MI savings going forward, in most cases, will be greater because the private MI can be cancelled under HOPA before 5 years, sometimes as soon as two years. And taking a broader look, what typically does a mortgage insurance policy cover? Usually MI covers mortgage payments for periods of between 12 months and 5 years, though terms between three and five years are increasingly difficult to find. Insurance usually kicks in when the borrower is unable to meet their mortgage payment obligations because of sickness, injury or unemployment – MI does not cover fraud.