Lower PMI Rate – FHA Mortgage Insurance Rate Reduction
Looking to get a lower PMI Rate? On February 22, 2023, the U.S. Department of Housing and Urban Development (HUD) issued Mortgagee Letter 2023-05, which offers a mortgage insurance rate reduction for those who qualify.
There are two types of mortgage insurance premiums:
- Annual mortgage insurance premiums, which are paid monthly.
- Upfront mortgage insurance premiums, which are most commonly financed at closing.
How to Calculate the Lower PMI Rate
There is a difference between PMI and MIP:
Private Mortgage Insurance (PMI) is for conventional loans when borrowers put less than 20% down and do not choose lender paid mortgage insurance. Mortgage interest rates and PMI depend on pricing adjustment though some lenders may offer lower options.
Annual Mortgage Insurance Premiums (MIP) are for FHA loans and are determined by the loan term and loan-to-value.
The equation is (Total Loan Amount * MIP percent) /12) = Monthly Payment. The MIP amount is calculated by basis points, which is just can broken down as a percent. The upfront mortgage insurance, which is currently 1.75% of the loan amount must included if financed at closing.
FHA Mortgage Insurance Rates – Greater than 15 Years
For loans that have a loan-to-value ratio less than or equal to 90%, the MIP is 50 basis points and duration is 11 years. For example, if the loan amount was $254,375 the equation would be: ($254,375 * 0.005) / 12 = $105.99 per month for 11 years.
For loan-to-values greater than 90% or less than or equal to 95%: ($254,375 * 0.005) / 12 = $105.99 for the life of the loan.
For loans greater than 95% loan-to-value: ($254,375 * 0.0055) / 12 = $116.59 for the life of the loan.
This does not apply to Hawaiian Home Lands and loans originated on or before May 31, 2009. Mortgage insurance is higher on loans greater than or equal to $726,200.
FHA MIP on Loans with 15 Years or Less
Loan-to-value less than or equal to 90%: ($254,375 * 0.0015) / 12 = $31.80 for the life of the loan.
Loan-to-value greater than 90%: ($254,375 * 0.004) / 12 = $84.79 for the life of the loan.
How to Lower Mortgage Insurance
In some cases, refinancing to a conventional loan may have lower PMI. Reducing mortgage insurance can be done by refinancing and applies to new purchases. The lower mortgage insurance will be applied to when closing on a cash out refinance or FHA Streamline refinance.
