The FHA (Federal Housing Administration) was charged with the purpose of allowing the general public (low income and middle class families) easy access to low interest mortgage loans. They achieved this by insuring various mortgage loans offered by different lenders. This effectively mitigated the risk lenders were exposed to. Like any insurance agency, they charge for this service. This FHA fee for insuring different loans is changing. For some loans, it is increasing, and for others it is decreasing. If you apply for a mortgage loan in Greater Boston, or any other place in America, the amount of money you will have to pay has changed.
The Changes in the FHA Fees Structure
Starting June 1st 2012, the up front Federal Housing Administration mortgage insurance fees for refinancing has been reduced to 0.01% of the original loan amount from the previous 1%. This is a big change which will make refinancing easier and cheaper.
Effective April 2012, the up front insurance premium for mortgage loans (which must be paid by the person borrowing the money) increased from 1% of the loan amount to 1.7% of the base loan amount.
From June 2012, borrowers with Jumbo Loans have to pay an additional 0.35% as interest in their yearly insurance premiums.
How the FHA Fee Change Affects Mortgage Loans in Greater Boston and America in General
The first change of lowering the insurance fee for refinancing to 0.01% of the base amount will make the refinancing of various loans much simpler and cheaper. So if you are planning on refinancing your mortgage loan in Greater Boston, June rings in a great time to refinance. This big change is also expected to make refinancing easier for the estimated 3 million people with existing FHA mortgageloans.
The second change of the increased annual insurance premium from 1% to 1.7%, will almost double the yearly insurance you pay to the FHA. This change has been made to increase the insurance fund of the FHA. This fund, used by the FHA to insure different loans, has been dwindling due to the resent housing bubble burst. It is estimated that this small change will add $1 Billion to the FHA’s funds. While we might think this change is unnecessary, if the FHA loses all its funds, tax payers’ money will be used to prevent bankruptcy.
The third change is partly to increase the FHA insurance fund, and partly (perhaps) an attempt to deter people from applying for jumbo loans (since these loans have higher risks involved). Considering that jumbo loan interest rates are much higher than normal mortgage loans, the 0.35% increase will have a greater effect than the increase of conforming loan rates.
All in all these changes have been made, presumably, in the general interest of the general public, to prevent a default of the FHA. Like any other regulatory change, it’s a two-edged sword, but we think it does mean this is an excellent time to consult a loan officer on a refinance or new home loan.