In a recent announcement, the Department of Housing and Urban Development (HUD) has lowered the mortgage insurance premium (MIP) rate from 0.85% to 0.55% - a 30-basis point cut. This move is expected to benefit hundreds of thousands of mortgage borrowers across the United States.
First, it's essential to understand what MIP is and how it works. MIP is a fee charged by the Federal Housing Administration (FHA) to borrowers who take out an FHA-insured mortgage loan. The fee is used to protect lenders in case the borrower defaults on the loan. The MIP is usually added to the monthly mortgage payment and can add a significant amount to the borrower's monthly payment.
We spoke to Southern Indiana mortgage expert, Brad Sea of Kentuckiana Mortgage Group, about this new change and what it means for homebuyers:
With the new lower MIP rate, borrowers can expect to save money on their monthly mortgage payments. For example, let's say a borrower has an FHA-insured mortgage loan of $250,000 with a 30-year term. Under the previous MIP rate of 0.85%, the borrower would pay $177.08 per month in MIP fees, adding up to $63,749.28 over the life of the loan.
Under the new MIP rate of 0.55%, the borrower would pay $114.58 per month in MIP fees, adding up to $41,249.28 over the life of the loan. This means a total savings of $22,500 over the life of the loan.
Per Brad Sea, the new rates go into effect with loans that are endorsed for FHA insurance beginning on March 20th, 2023, but the lenders that work with Kentuckiana Mortgage Group are making the new rates active, effective immediately.
The lower MIP rate will also make homeownership more accessible to low and moderate-income families. FHA-insured mortgages are a popular choice for first-time homebuyers and those with lower credit scores. The lower MIP rate means that these borrowers can qualify for larger loans or afford higher-priced homes.
Another benefit of the lower MIP rate is that it could help stimulate the housing market. With lower MIP fees, more borrowers can qualify for FHA-insured mortgages, increasing demand for homes. This could lead to more new home construction and a boost to the housing industry.
We did ask Brad Sea if there was a way to eliminate the Mortgage Insurance Premium altogether and he told us, “You can get rid of [MIP] currently on conventional loans or with 20% down when you buy. These are the most common ways to avoid monthly mortgage insurance.” And if you don't have a large down payment, the monthly mortgage insurance you'll be required to have in exchange for a lower down payment, just got a whole lot cheaper.
In summary, the HUD's decision to lower the mortgage insurance premium rate from 0.85% to 0.55% is a positive move for mortgage borrowers and homeowners. It will result in lower monthly mortgage payments, making homeownership more affordable and accessible to low and moderate-income families. It could also stimulate the housing market, creating more opportunities for homebuyers and helping to drive economic growth.
For more information on the new mortgage insurance premium rates or to inquire about how you can qualify to buy a home, please email us at 812Living@gmail.com
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