The Federal Housing Administration will be lowering its annual mortgage insurance premiums (MIP) on new mortgages to 0.85% from 1.35% of the total loan amount starting January 26, 2015. This will be implemented in order to encourage more home purchases by first-time and middle-income home buyers.
The new rate remains higher than historical levels but could shave about $900 off of the average FHA borrower’s annual payment, the government said. On a $200,000, 30-year fixed home loan with less than 5% down, a borrower would save $818 ($68/mo) after one year and $7,421 after a decade, according to real estate website Zillow.
In California where FHA loans are involved in up to 15% of home sales the move could save average buyers as much as $2,000 a year ($166/mo), former FHA Commissioner David H. Stevens said.
The FHA rate cut could help more than 800,000 homeowners nationally save money and encourage 250,000 new home purchases in the next three years, according to the White House. Federal regulators also loosened lending requirements this fall on loans backed by mortgage finance giants Fannie Mae and Freddie Mac.