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FHA Mortgage Premium Cuts Could Save Consumers Thousands
Friday, January 16, 2015 6:25 AM

In a speech last week, President Obama announced that the Federal Housing Administration will reduce annual mortgage insurance premiums (MIP) by half a percentage point. Premiums for those borrowers who put between 3.5 percent and 5 percent down on their home will be lowered to 0.85 percent, from 1.35 percent. For borrowers with a 5 percent down payment or greater, the premiums will fall to 0.8 percent, from 1.3 percent.

Zillow, the online real estate database experts, says that if the expectations come true, those numbers would represent a big boost to sales volumes that remain below historic norms, even as the housing market overall has recovered well since bottoming in late 2011 and early 2012.

FHA mortgage premiums are paid annually in 12 monthly installments, on top of principal, interest and insurance. For new FHA loans, the premiums must be paid over the entire life of the loan, unlike pre-2013 loans where mortgage insurance was waived after homeowners achieved 20 percent equity in their home.

Assuming a borrower is taking out a loan on a typical $175,000 home (roughly the national U.S. median home value, as of November), the savings for FHA-insured borrowers could be substantial, according to Zillow. After 30 years, a borrower putting down 3.5 percent could save more than $14,700 over the life of a 30-year loan. A borrower putting down 5 percent would save more than $14,300.

CUNA President/CEO Jim Nussle welcomed the announcement, but advocated for all agencies to take additional steps to assist credit unions and their members.