It’s not an April Fool’s joke, although borrowers certainly will wish it were. Starting yesterday, Federal Housing Administration (FHA) loans will come with higher mortgage insurance premiums in order to help the agency increase its insurance fund. Annual fees rose by 0.1 percent yesterday, making April 1, 2013 the third time in the past two years that the FHA has increased mortgage insurance premiums. The fees have nearly tripled since 2008[1]. Starting in early June of this year, the FHA will begin requiring new borrowers to pay for mortgage insurance for the entire life of the loan. Previously, mortgage insurance premiums could be canceled once the loan was paid down to 78 percent of the original value of the house or after five years, whichever came later[2].

The hikes seem small, but the numbers are starting to add up. Starting this month, FHA loans for $200,000 on which borrowers put down less than five percent will come with a $225 monthly mortgage insurance premium (MIP). Larger down payments, shorter loan terms, and larger borrowed amounts can affect the monthly payment both positively and negatively. Do you believe that these insurance hikes are a good idea? Will they make a difference in FHA overall health?

by Carole VanSickle