Dropping The FHA Mortgage Insurance Premium – Past & Present – Boston FHA Loan Insights

All mortgage loans from the Federal Housing Administration require Mortgage Insurance Premiums, which is equivalent to the Private Mortgage Insurance charged by private lenders. In the past, the payment of these premiums could be dropped after a certain period of time, paying off a certain amount of the loan. Due to a new ruling by the HUD, your ability to drop the insurance premium is set to become a lot more challenging.

English: the mortgage insurance - North Street
English: the mortgage insurance – North Street (Photo credit: Wikipedia)

FHA Mortgage Insurance Premiums – Past Before the year 2000, the FHA required mortgage insurance loans for the entire period of the loan.  For instance, if your loan period was 30 years, you were required to pay insurance throughout the term period. There was never any option to stop paying those premiums. But in the year 2000, Andrew Cuomo, who was then Secretary of the US Housing and Urban Development, announced that due to the increase in the financial strength of the Mutual Mortgage Insurance Fund (MMIF), borrowers of FHA loans were now allowed to drop the payments of the insurance payment upon reaching a 22% stake in their homes’ equity.  That is, if you take out a loan for $200,000 you were allowed to drop the insurance payments after you pay back the lender $44,000 or more.

FHA Mortgage Insurance Premiums – Present – June 3rd 2013 Beginning June 3, 2013, the FHA has abrogated the automatic cancellation of the mortgage loan insurance premiums once the borrower pays up to a 22 per cent stake in their home’s equity. Depending on the Loan To Value ratio at the time of purchase of the mortgage loan, the ability to drop the mortgage loan insurance payments will differ:

– Loan To Value Of 90% or Lesser: If at the time of purchase the LTV value of your loan is lesser than or equal to 90%, the insurance payments can only be dropped after a period of 11 years (they cannot be dropped earlier no matter how much of the loan amount is repaid before this period).

– Loan To Value Of Greater Than 90%: If, however, at the time of purchase the LTV value is greater than 90%, then because of the abrogation, you will be required to pay for mortgage insurance throughout the life of the loan.

– Reason Behind The Change
In the past, the MMIF was extremely healthy and had enough money to allow the dropping of insurance payments after a 22% equity stake. But today the fund is quite weak: an audit showed that while the MMIF had a large reserve of $ 30.4 Billion, its net losses for 2012 were $ 46 billion. By making it mandatory for mortgage loan borrowers to pay insurance throughout the period of the loan, the fund will have a chance to protect itself and rebound from its current weak state.

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Phil Ganz (354 Posts)

Philip D. Ganz is a Boston Mortgage Broker and Boston Home Loan specialist. For information, expertise, consulting, or advice about home loans, refinancing mortgages, or commercial property loans, contact Phil with no obligation: 617-529-9317

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