FHA will increase its Mortgage Insurance Premium (MIP) rates effective Oct 4, 2010.  Actually the monthly FHA MIP rates will increase while the upfront premium will decrease.  More on the specifics in a moment.

Okay, let’s get the boring stuff out of the way first.  Congress recently passed HR 5891 which gives the FHA authority to adjust MIP rates. Basically FHA can increase the cap on premiums from 0.55% to 1.55%.  Now before your eyes glaze over from all the acronyms, premium percentages and HR numbers (not to mention the use of the word “congress”), there is a very good reason all this is so important.

The word on the street is that FHA mortgage insurance funds are way to low to support the curent default rate. If the funds pool cannot cover defaults we could be looking at yet another government bail out.  I don’t know about you, but I’ve suffered through just about all the bail outs I can stand.  Not sure how many more our still fragile economy can take either.  At least some thought is being given to avoiding potential problems with this issue.

What does this mean to you?

The monthly MIP rates will increase by just over 63%.  Here’s an example of what this means on a $200,000 home mortgage.

MIP before Oct 4 is $91.66

MIP after Oct 4 will be $150.00

Increase of $58.34 per month

The annual MIP fee that is paid up-front will actually decrease from 2.25% to 1% of the loan amount.  In the same $200,000 loan amount example, this is a decrease of $2,500.  Since this typically gets added to the loan amount, at todays rates we talking about somewhere around $13 per month.  Taken with the $58.34 per month increase in this example, monthly payments will still go up.

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