New FHA Annual Premium Being Lowered: How much will this save you?
January 12, 2017
FHA recently announced that it will be lowering the annual mortgage insurance premium from .85% to .60%. The FHA loan borrower will pay this on a monthly basis which then gets collected and paid annually to FHA. The lowering of premium will save the FHA homeowner about $20 per month per $100,000 of the loan.
For example, on a $100,000 loan previously, the monthly premium would have been $70.83 but having it lowered to .60% has the borrower paying only $50/month. This $20 difference can make or break the purchase of a home for the potential homebuyer who’s debt to income ratios are really tight and need that $20 difference to make sure they end up on the right side of an approval metric.
While $20 may not seem like a lot on the surface let’s look at this way—based on my example above with a $100,000 loan amount that’s a savings of:
$240 per year
$2,400 in ten years
OR $7,200 over the life of a fully paid out 30yr fixed loan.
Now take that $20 monthly savings and invest it with an average of 6% return on compound interest:
$269 in the first year
$3,301 after 10 years
$19,700 after 30yrs of investing at a 6% rate of return.
This is some significant savings over the length of the loan.
The goal of the FHA premium reduction is to make these types of loans attractive again to the average consumer. FHA seems to have lost some market share to low conventional rates and competitive conventional down payment programs. FHA wants to make sure it’s providing the best benefit it can to today’s homebuyers. Better rates on a low down payment program help keep more money in the pocket of the consumer.
If you have questions on FHA loans or want to see if you qualify for one, I can be reached at firstname.lastname@example.org or call/text 740-398-4917.
Happy House Hunting!
Zach is a Mortgage Advisor with State Bank in Dublin, OH. He writes and speaks regularly on the mortgage industry, personal finance, business development, and leadership. His focused approach on educating clients through the mortgage process allows him to help hundreds of new homeowners each year.
Learn more about Zach at www.mortgagecoachzach.com, find him on instagram @mortgagecoachzach, or call/text him at 740-398-4917.