2.25%. Sounds good? Not so fast. With the recent popularity of the FHA loan--a government insured loan--there have been some "liquid" challenges that have come into play with the plethora of foreclosures. The goal here is to insure that the government can continue lending by beefing up their reserve account that pays the lender in case of loss. This will come with the new +.9% for the annual premium.This new Mortage Insurance change will help. In the long run it's better for FHA/HUD and worse for a buyer if they keep their loan for more than three years. Let's lay this out so you can understand it more clearly. If a buyer purchases a house for $200,000 and puts 3.5% down, they will only pay $1,930 upfront, but their monthly MI will be a different story--try $144.75 per month instead of the comfortable $88.50. Using these same numbers watch what happens over time:
As you can see by year four FHA gets the upper hand in the MI game--what would have in the past cost $8,588 now will have a cumulative cost of $8,878 with the new MI schedule. The fact of the matter here is that most homeowners keep their mortgages for more than four years. Today the rates are so low there is no justification to refinance the loan.
This is not the end of the changes. There are still more under consideration on the white board in Washington. Stay tuned.
