April 11, 2012
A reader asks, “I am refinancing my home with FHA. I am financing $54,540.00 and the appraisal (by FHA) is $180,000.00. Since I have almost $125,000.00 in equity why are they making me purchase FHA mortgage insurance at $50.00 a month? How long will I have to pay this on a 30 year loan at 4.25%?”
Mortgage insurance, also known as MIP, is required by the FHA because it protects the government and the lender against a loss should the borrower default on his or her FHA loan. FHA requirements include mortgage insurance for borrowers making a down payment of less than 20 percent. Mortgage insurance is also required on refinance loans and is included in various rules governing FHA refinancing loans such as the following:
“The lender must determine there is a net tangible benefit as a result of the streamline refinance transaction, with or without an appraisal. Net Tangible benefit is defined as:
a) Reduction to the principal, interest plus MIP by at least 5% (compare the new Principal & Interest & MIP to the existing Principal & Interest & MIP), or
b) For details of permissible minimum thresholds involving refinancing in or out of an ARM refer to Mortgagee Letter 2011-11.”
The FHA Mortgage Insurance Premium rules state the following concerning cancellation of the MIP payments:
- FHA mortgages 15 years and less, and with Loan to Value (LTV) ratios 90 percent or greater: annual premiums are canceled when the LTV reaches 78 percent. This occurs regardless of the amount of time the mortgagor has paid the premiums.
- FHA mortgages longer than 15 years have their MIP premiums canceled when the Loan to Value ratio reaches 78 percent. However, this happens only when the mortgagor has paid the annual premium for at least five years.
- Mortgages with terms 15 years and less and with loan to value ratios of 89.99 percent or less are not charged annual mortgage insurance premiums.
Some borrowers with FHA home loans may be due a refund of mortgage insurance payments. According to the FHA official site, “You may be eligible for a refund of a portion of the insurance premium if you:
– acquired your loan after September 1, 1983
– paid an up-front mortgage insurance premium at closing and
– did not default on your mortgage payments.
Review your settlement papers or check with your mortgage company to determine if you paid an up-front premium.”
For more information, contact your lender or the FHA directly at 1-800-CALL FHA.You can learn more about FHA MIP refunds at http://www.hud.gov/offices/hsg/comp/refunds/fhafact.cfm.
Joe Wallace has been specializing in military and personal finance topics since 1995. His work has appeared on Air Force Television News, The Pentagon Channel, ABC and a variety of print and online publications. He is a 13-year Air Force veteran and a member of the Air Force Public Affairs Alumni Association. He was Managing editor for www.valoans.com for (8) years and is currently the Associate Editor for FHANewsblog.com.
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