President Obama will be formally announcing that he will direct the Federal Housing Administration to reduce annual mortgage insurance premiums by 50 basis points, from 1.35% to 0.85%.
Zillow’s Allison Paoli ran the numbers on what this could mean for first-time buyers, saying: “On a $175,000 home loan with less than 5% down, this MIP reduction will equate to a savings of $818 per year or $3,932 over five years.”
FHA premiums are paid in 12 monthly installments every year, in addition to principal, interest and insurance. An FHA change now makes these premiums last the life of the loan regardless of how much equity is built into the loan. In prior years, borrowers could eliminate the MIP once equity in their home reached a certain percentage.
The announced changes will take the annual MIP from 1.35% to 0.85% for loans with less than 5% down, and from 1.30% to 0.8% for loans with more than 5% down. Here’s how a 50 bps FHA premium cut would break down: