At the beginning of the week, the Federal Housing Administration announced it will decrease its annual mortgage insurance premiums by .25% annually or from .85% to .6% per year. This measure will go into effect for new mortgages closing or starting disbursement on or after January 27, 2017. This is the first reduction in insurance premiums since January 2015, when the FHA reduced premiums by 50 basis points.
While this decrease might seem modest, experts estimate that it is likely to save consumers hundreds of dollars each year. For instance, with this reduction a homeowner with a $200,000, 30-year fixed rate mortgage can expect to save about $500 annually. Looking at the larger picture, it’s expected that the reduction in insurance premiums will in total save $5 million for about 1 million borrowers.
The announcement arrived on the heels of the FHA’s fourth straight year of economic health. In fact, since 2012 the FHA has reportedly increased its assets by over $40 billion. With such successful economic growth, the FHA has determined that offering lower prices to borrowers is fiscally responsible.
The FHA’s decision further cements its importance for prospective homeowners. Since the Great Recession, FHA loans have been vital for those securing a mortgage, and these loans have been especially important for those purchasing their first homes. In contrast to the 20% down payments required by many banks, FHA loans require a much more modest 3.5% down payment. The loans are also available for people with lower credit scores, as long as the borrowers also have steady jobs and little debt. Now, with premiums at about .60%, FHA has once again provided important resources that expand access to housing.
The extra help comes at the perfect time for prospective buyers worried about rising mortgage rates. While the average 30-year fixed rate mortgage recently decreased to about 4.2%, that rate is still well above the 3.97% average seen a year ago. And, don’t forget that this is the first time average rates have begun the year above 4% since 2014. These rates are still low in relation to the historical ebb and flow of mortgage rates, but higher rates will lead to higher monthly costs for homeowners, so the decrease in FHA insurance premiums could provide a welcome reprieve for buyers looking to save money on their mortgage.
For help securing a mortgage and buying your perfect home, contact Cody Touchette (MLO 83216) at #425-492-1698 with Caliber Home Loans, Pickett Street’s preferred lender.