Get Ready for a FHA Mortgage Insurance Premium Increase

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There are changes to FHA premium that will increase the amount of your monthly mortgage insurance premium. This change was voted on by the House of Representatives and was approved unanimously. It is not law, however, until it is voted on in the US Senate. By the way, the current monthly mortgage insurance premium is .55% of the unpaid loan balance that amount is divided by 12 to equal the new monthly mortgage insurance premium. The Federal Housing Administration Reform Act proposes an increase in the monthly insurance premium of up to 1.55 percent.

What does this mean in dollars and cents? It means that if you have a $150,000 loan, your current monthly mortgage insurance premium is $68.75. The expected increase of .90% will increase the payment to $112.50. The maximum expected increase of 1.55% will increase the premium to $193.75. It is unclear at this writing what will dictate which premium increase each and every loan will have, but it is important to be prepared for the higher premium increase.

The increase in monthly mortgage insurance premium is coupled with a proposed decrease in upfront mortgage insurance premium from the current 2.25 percent to one percent.

However, it is unclear how this bill affect current loans; therefore, it is important to be prepare for an increase in premium now. The reason it is important to prepare for this increase is that with most mortgages the payment are escrow. With an escrow account, the mortgage company notifies you of an increase in monthly premium only once a year. At that time, you are given an option to have an increase in monthly mortgage or pay a lump sum. However, paying the lump sum will not decrease your mortgage amount, so it is important to do the calculation and put the proposed increased amount in a CD or saving account so that your money can work for you.

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