How Much For FHA Mortgage Insurance?

by Peter G. Miller
July 3rd, 2008

Suzanne writes and asks about FHA loans and mortgage insurance:

“I do have an question regarding my 15 year FHA refinance loan with mortgage. They not only charge me with $1,600 on PMI (mortgage Insurance) upfront, but they also charge me on monthly basis. The mortgage guy told me that they have to for townhome and condo, also after a year the monthly PMI will just fall off and I don’t have to worry about it. But when I call the lender and asked them about it, they said the mortgage insurance would continue until I reach a certain loan amount.

“Can anyone tell me is more about the PMI on the FHA PMI?”

Private mortgage insurance (MI — not PMI) is the private-sector equivalent of FHA insurance — in exchange for an insurance fee you get to buy a home with less down. This is okay with the lender because if you’re foreclosed the insurance protects the lender.

With FHA loans there’s an upfront “mortgage insurance premium” or MIP and an annualized MIP paid monthly.

As of July 14th HUD will go to risk-based pricing for FHA insurance, thus the up-front premium will range from 1.25 percent to 2.25 percent depending on the amount down and your credit status. The annual fee will range from .50 to .55 percent.

If you pay .50 percent each month on the basis of the remaining loan balance then to find your monthly payment for a $150,000 loan balance you would multiply $150,000 x .50 = $750. $750 divided by 12 = $62.50. The next month the loan balance will be a little smaller so the MIP cost will drop a touch.

For details, see HUD Mortgage Letter 8-16.

As to canceling, see HUD Mortgage Letter 00-38.

It says the following:

“In the past, some FHA borrowers have paid annual mortgage insurance premiums throughout the life of their mortgages. Effective for all loans closed on or after January 1, 2001, FHA’s annual mortgage insurance premiums will be automatically canceled under the following conditions:

*For mortgages with terms more than 15 years, the annual mortgage insurance premiums will be canceled when the loan to value ratio reaches 78 percent, provided the mortgagor has paid the annual mortgage insurance premiums for at least five years.

*For mortgages with terms 15 years and less and with loan to value ratios 90 percent and greater, the annual mortgage insurance premiums will be canceled when the loan to value ratio reaches 78 percent, irrespective of the length of time the mortgagor has paid the annual mortgage premiums.

*Mortgages with terms 15 years and less and with loan to value ratios of 89.99 percent and less will not be charged annual mortgage insurance premiums.”

The FHA also says:

“FHA will determine when a borrower has reached the 78% loan to value ratio based on the lower of the sales price or appraised value at origination. New appraised values will not be considered. For example, if the lower of the sales price or the appraised value at origination was $100,000, when the loan amount reaches $78,000, FHA will no longer collect annual mortgage insurance premiums on the loan. Cancellation of the annual mortgage insurance premiums will normally be based on the scheduled amortization of the loan. However, in cases where the loan payments have been accelerated or modified, cancellation can be based on the actual amortization of the loan as provided to HUD by the servicing mortgagee.”

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17 Responses to “How Much For FHA Mortgage Insurance?”

  1. peter Says:

    I don’t understand- two lenders have told me that within the last two months a new rule was insituted that required pmi to be paid for 5 years from the beginning of the loan regardless of the loan to value ratio. Is this true? fyi it’s new mexico.

  2. Patricia Mark Says:

    I want to refinance my mortgage for 45,000 ( the balance due) to get a better interest rate. My home is valued @ 150,000. I am told I will have to pay PMI until the loan is paid off. It is approx 20. per month. Is this correct?
    Thank you,
    Patricia Mark

  3. Peter G. Miller Says:

    Patricia –

    No. The monthly insurance premium ends once the original loan balance has been paid down 22 percnet.

  4. Barbie Says:

    I’m confused too…we are looking to refinance our home and our mortgage broker told us, that on a FHA loan, that the PMI will drop after 5 years, regardless of the Loan to Value ratio? Is he feeding us bull?

  5. Michael Says:

    Whoa! Hold on, folks. To Patricia Mark, Mortgage insurance is only required for borrowers with less than 20% equity at time of purchase or refinance. In your case, a $45,000 mortgage on a home valued at $150,000 would not require mortgage insurance AT ALL! As long as your LTV (loan-to-value) is 80% or less (or $120,000 or less, in your case), there is no insurance, upfront or monthly.

    Years ago, a buyer had to bring 20% to the table. The rationale for banks has not changed. They are essentially willing to lend to a buyer or a refinancer if their risk is limited to 80%. Mortgage Insurance is simply an instrument which protects lenders from “risky” borrowers with less than 20% equity. Once any borrower pays their principle down, or as soon as their home value rises, so that loan-to-value reaches 80% or less, they can cancel the ongoing mortgage insurance payments. The 5-year rule simply means that most people reach 80% in 5 years (on 30 year loans); but the more important factor is hitting that 80% mark.

    How do you calculate? Take the value of your current mortgage loan balance (total) and divide it by the value of your home. If the answer is .8 or less, you should not be paying mortgage insurance and you need to remove it.

    Incidentally, FHA refinances are eligible for a refund of a portion of the original upfront mortgage premium; the amount of which depends on how long payments have been made.

    If you are claiming a higher home value, you’ll need to have it re-appraised first. FHA has a form to complete and file, and that’s it. To learn more, read the HUD Mortgage Letter 8-16 posted above.

  6. Ed Says:

    Michael, my understanding is what you are talking about is Private Mortgage Insurance. This was an extra charge when you were going with a lender and your Loan to Value was over 80% on the loan.

    What Patricia is talking about is the mandatory FHA MI that is required for any FHA loan, no matter what the loan to value is, and it is a minimum of 5 years, and longer if your value is above 78% loan to value. If your loan is 15 years or less, then you are not facing any FHA MI under 95% loan to value.

    Clear as mud.

  7. jennifer Says:

    I will be getting an FHA mortgage and I am putting 20% down on the loan. I am being told I need to pay PMI insurance “no matter what” on a FHA loan. Is this because I am taking out a 30 year loan, not a 15 year?

  8. Austin Says:

    How does FHA determine value? New appraisal? I am getting the run around on this subject, I was told that LTV has nothing to do with current value, which is stupid. Just another way for them to try to make money.

  9. alma Says:

    I am in the 24th year of my mortgage. I contacted my mortgage company two years ago about dropping my PMI mortgage insurance and was told by the lender that my FHA loan didn’t qualify because it was taken out before the law was effective. Is this true?

  10. Vern Says:

    Ed says that there is no MI on 15 year FHA loans with a LTV of under 95%. FHA says it has to be under 90%

  11. Aaron Says:

    Is it true that if you cancel your mortgage insurance, you will not be able to get a new mortgage insurance in the future?

  12. Gene Neal Says:

    No that is not true. You are allowed to receive a new policy.

  13. Jon Doe Says:

    So.. I have a 30 yr fixed FHA and I am paying alot of MI… its roughly 200/mo…

    I have just paid the first payment and ran into some $$$ – and so I’m paying down alot of the principal… After the payment, I may be close to 70% based on one of the appraisals while purchasing… Any chance I can get the MI removed?

    I also own another property outright.. I dont understand why they need MI.

  14. Tina Says:

    probably not. with an fha loan you have to pay the premium for a minimum of 5 years. If I were you I would check into refinancing into a conventional loan. with 20% equity there would be no PMI.

  15. Rich F Says:

    The way it was explained to me, and confirmed by several sources, was that any FHA 30 year loan, whether for a purchase or refi, and regardless of LTV, would require their MI. I tried to have it canceled a year or so into my FHA refi loan, and the lender told me I would need to pay it for 5 years, regardless of LTV. I did a refi 3 years ago at 70% LTV, and I’m still paying it. But, my city assessment has also dropped about 10-12% in the last couple of years, so I can see why they don’t use new appraised value to determine a new LTV. Nothing in my neighborhood is selling for what houses were selling for in 2007. It’s not really worth it to me to refi again into a conventional loan, so I’ll just pay it for 2 more years, then cancel.

  16. maryann Says:

    I have been paying PMI for seven years and have never once been late on my mortgage. I did notice it dropped $10 a month. I now pay $65/month instead of $75. I have reached the ratio to have it dropped and I do have an FHA loan. I received a letter from Wells Fargo that I have to keep the PMI for the life of the loan. This is not what I was told at signing with a lawyer present.

    Any advice?

  17. Jesse McCrady NMLS #37702 Says:

    There are a lot of confusing answers so I would like to set the record straight.

    30 year FHA loan. Regardless of the loan to value, MIP must me paid for 5 years at the very least. You are also required to pay an upfront mortgage insurance premium even if you have paid one in the past (refinance transactions).

    15 year FHA loan
    You still have to pay an upfront mortgage insurance premium. However if your loan to value at 89.99 percent or lower you do not have to pay MIP.

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