Changes that will affect you in the place you least like – your wallet.
The first, an ever-so-slight increase in the MIP rate. 10 BPS to be exact. BPS are basis points, or 1/100th of one percent. So 10 BPS is actually 1/10th of one percent. Like I said, it’s an ever-so-slight increase. This change is coming soon. It goes into effect on April 1, 2013.
Bobbi MacPherson, the Quicken Loans FHA product manager, told me this would cost a person with a $200,000 about $17 or so extra each month. That might not seem like much, but that’s about 200 bucks a year. Who doesn’t want $200 in their pocket and not their monthly mortgage payment?
The second change, coming June 3, 2013 is a bit more important and costly for our clients. The rules on how long FHA MIP stays on a mortgage are changing. And not in way you’ll like.
MIP will stay on loans that start with an LTV of 90% or higher for the life of the loan. Can you say 30 years (if it’s a 30-year fixed)? Currently, MIP goes away when you reach an LTV of 78% or after 5 years, whichever is longer. Once it’s gone, the cash you spend on MIP stays in your pocket. After May 3rd, not so much. Also, for loans with an LTV of 90% or less, the new MIP will last 11 years.
Here’s what Bobbi had to say about both changes:
MIP increase effective April 1, 2003
This is the 4th change in the last 3 years. MIP is certainly getting more expensive and many borrowers who opted for FHA in the past may not make that choice any more. It’s been common over the last few years to see people with great credit profiles take FHA loans simply because it was more advantageous for them. With these changes, that will go away.”
MIP lasting for the life of the FHA loan effective June 3, 2013
Today, when you get an FHA loan, you pay MIP as part of your monthly payment for 5 years, or until 78% LTV, whichever is longer. The change they are making will now require MIP to be paid for 11 years if your original LTV is 90% or lower and for the life of the loan if you are over 90%. This will be a very difficult change for consumers to see.
Thanks Bobbie. And while MIP lasting for the life of a loan might be difficult for consumers to see, it won’t be difficult for them to understand that, after 5 years, they would be paying $100 less each month (or whatever their MIP payment is) if they had gotten their FHA case number before June 3rd.
So there you have it. Two changes to FHA loans that will cost you some money.
If you are in the market for an FHA loan, waiting could be expensive. Plus, mortgage rates are still down near record lows. They might rise, which would be a double-whammy for your wallet. Higher MIP and higher rates.
Ouch. Don’t let that happen.