Interest rates have increased but FHA has decided to help potential homeowners by lowering premium payments by 25 basis points. For the average person obtaining an FHA loan this translates into approximately a savings of $500 per year. After the financial meltdown FHA found itself in financial disaster. The purpose of the mortgage insurance is to allow people who don’t have a huge down payment the opportunity to buy a home with less money down.
Overall it is hoped this will still allow some borrowers to qualify in spite of the interest rate increase. However, I would like to remind borrowers who use this product to monitor the value of their home – once 20% equity is obtained it pays to refinance into a conventional loan to get away from the mortgage premiums altogether.
Hint — save money to pay for your closing costs so you can get rid of those premiums and not have to increase your outstanding balance!