How Much Could Lower FHA Mortgage Insurance Costs Save You?
By Alison Paoli
In an effort to make homeownership more accessible and sustainable, President Obama announced last week the Federal Housing Administration (FHA) will reduce annual mortgage insurance premiums by 0.5 percentage points. On a $175,000 home loan with less than 5 percent down, that reduction would mean a savings of $818 per year, or $3,932 over five years.
FHA annual mortgage premiums are paid in 12 monthly installments every year, and are paid on top of principal, interest and insurance. For new FHA loans, they last for the entire life of the loan, regardless of whether you have more than 20 percent equity in your home.
The announced changes will take the annual mortgage insurance premiums from 1.35 percent to 0.85 percent for loans with less than 5 percent down, and from 1.30 percent to 0.8 percent for loans with more than 5 percent down. According to the White House, the lowered premiums will help more than 800,000 homeowners save on their monthly mortgage costs and enable up to 250,000 new home buyers to purchase a home.
Annual Savings in FHA Mortgage Insurance Premiums on a $175,000 30-year Fixed Loan
Methodology: Zillow calculated the monthly mortgage insurance premium payment by applying the annual fee (in basis points) to the average annual outstanding balance after accounting for upfront fees, as described by the FHA.