Borrowers who finance through FHA-insured mortgage programs need to pay two kinds of mortgage insurance payments. The first one is upfront mortgage insurance payment which is paid at the closing and the second one is annual insurance payment (MIP or PMI) which is paid in twelve monthly installments. For FHA streamline refinance programs the same two mortgage insurances also apply. The upfront mortgage insurance payment can be rolled into the loan amount and thus can be financed to be paid during the life of the loan.
The newly introduced FHA streamline guidelines divide the homeowners opting for a streamline refinance into two groups. Those borrowers whose existing FHA mortgage was originated prior to June 1, 2009, fall under the 1st group while the FHA loans after this date fall under group 2.
Starting from June 11, 2012, the 1st group homeowners are treated as “old” mortgages and they will pay substantially lower insurance premiums than those who fall under group 2.
Existing FHA Mortgages prior to June 1, 2009
If the FHA mortgage you wish to refinance had a closing date prior to June 1, 2009, the amount of mortgage you pay is as follows:
Upfront Mortgage Insurance Premium (UFMIP)
As mentioned earlier, the old FHA mortgages have been grandfathered into the old premium rates prevailing before June 1, 2009. The Upfront Mortgage Insurance Premium for such borrowers seeking a streamline FHA refinance loans are just 0.01% of the loan amount.
This basically means that you will pay about $10 for every hundred thousand dollars in loan amount as upfront mortgage premium for your new FHA streamline loan. This is quite low compared to the rate currently applied to the borrowers who fall in the second group.
Annual Mortgage Insurance Premium (MIP)
The Annual Mortgage Insurance Premium (MIP or PMI) is only charged for borrowers who make a smaller down payment. The annual premium rate is charged based on the LTV (Loan-to-value) and the loan term of your new streamline loan.
The total MIP of 0.55% is applicable to all new streamline loans that are refinancing an existing FHA mortgage originated prior to June 1, 2009.
For streamline FHA loans with a 15-year term and an LTV less than or equal to 78% pay no annual FHA PMI.
There is no additional premium that you need to pay even if your loan amount falls under the jumbo guidelines. Borrowers in high-cost living areas will also pay no more than 0.55% as annual FHA MIP when refinancing with an FHA streamline program.
Existing FHA Mortgages with a closing date on/after June 1, 2009
Both the annual mortgage insurance premium and the monthly insurance are much higher for the existing FHA mortgages planning on refinancing with an FHA streamline mortgage.
Upfront Mortgage Insurance Premium (UFMIP)
The upfront mortgage insurance is 1.75% of the loan amount for new applicants for streamline loans with an existing mortgaged that closed on/or June 1, 2009.
This basically means the borrower pays $1,750 for every $100,000 in loan amount. This applies to all borrowers whose current FHA mortgages fall under group 2.
While FHA streamline guidelines do not allow the inclusion of closing costs into the loan amount, they allow an exemption for the annual MIP, which can be financed with an FHA streamline loan.
It’s also important to note that a good majority of the borrowers need not pay the entire annual MIP amount as FHA allows for the refund of upfront MIP paid previously. This refund only applies if the borrower has not reached the refund limit of three years.
If you were to refinance into an FHA streamline about 10 months after you have closed on your previous FHA loan, the total refund you can expect is 62%. The further you delay, the lesser will be the amount you can expect to get as a MIP refund.
Annual Mortgage Insurance Premium (MIP)
The following FHA annual MIP premiums come into effect from April 1, 2013. These new high MIP premium rates are applicable if your existing FHA mortgage was originated before June 1, 2009.
The amount you pay annually towards your insurance premium (FHA PMI) will depend on the duration of your loan term and the LTV.
Borrowers who choose a 15-year term and have an LTV above 90% on their streamline FHA refinance program will have to pay 0.70% as annual MIP. If your LTV is under 90% for the same term loan, the FHA annual MIP is just 0.25%. As you can see, the amount of equity in your house can make a big difference.
If the term of your new streamline loan is 30-years, the following MIP rates apply.
- If the LTV is over 95%, the annual MIP is 1.35%.
- If the LTV is under 95%, the annual MIP is 1.30%.
Additionally, borrowers whose loan amounts fall into the jumbo category (>=$625,000) and have a loan term greater than 15 years, an additional 0.20% is added. For new loan amounts greater than $625,000 and term of 15-years or less, 0.25% is added to the standard FHA MIP amount.
At the moment, FHA allows cancellation of annual MIP if the LTV is 78% or lower, or if the borrower has made continuous payment for three years.
Going forward, the annual FHA MIP or PMI will only be canceled if the borrower has made continuous payments for 11 years, provided the initial LTV was 90% or less. So those who make the minimum required down payment or an amount less than 10%, the annual MIP will be assessed each year.
As a part of the recently announced changes, FHA intends to completely eliminate the cancellation of MIP for loans that will close after June 3, 2013.
These steps are only going to strengthen the FHA’s corpus and thus enable it to provide stable and affordable mortgage loan programs to a wider pool of homebuyers in the future.
The mortgage insurance payments are taken into consideration when calculating the net tangible benefit of going through an FHA streamline refinance. The new principal, interest and insurance payments must at least be 5% or greater in order to satisfy the tangible benefit clause required for all FHA streamline refinances.
Figuring out the Details
If you are in the market for a home, you probably wonder how much you can afford. With FHA financing, you can get a decent size mortgage by putting only 3.5 percent of the purchase price down on the home. But that leaves you with a hefty size mortgage, so how do you know what your payments will be? The FHA calculator can help.
How to Use an FHA Calculator
If you find an FHA calculator that allows you to input all of the details for the loan, you are in charge of the terms. If you find a calculator that has assumptions regarding the FHA loan, however, you will have to meet those assumptions in order to get a solid answer. For example, a calculator that only provides a payment assumes the following:
- You are only putting down the minimum of 3.5 percent on the home
- You have excellent credit
- The home is a single-family home
If you do not meet any of the above assumptions or you want a more customized answer to your monthly mortgage payments, you can find one that allows you to put in the following information:
- Down payment percentage (minimum of 3.5%)
- Purchase price
- Appraised value
- Closing costs
- Interest rate
- Mortgage Insurance
This allows you to see the various choices you may have when you see a lender for your FHA loan. Playing with the numbers, especially the discount points can help you see how paying a point or two will change your monthly payment. You also alter the amount of the down payment you use to see how different LTVs affect your monthly payment. Once you have a payment you are comfortable with on a monthly basis based on the payments you derived with the calculator, you will have a better understand when you see a lender. Keep in mind, when you play around with the numbers how long you plan on staying in the home. If this is your forever home, paying the home off faster might be a better option, which means lower interest, yet probably higher discount points. If you will only be in the home for the short-term, you might want to consider skipping the discount points and paying the higher interest rate since you will not ever pay off the mortgage before you move.
The FHA calculators are out there to help you decide what is right for you and to help you get educated on what is available to you before you talk to a lender. The more you know about the FHA mortgage before applying, the easier the process will be for you.