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Homeowners Canceling Their FHA Mortgage Insurance Premiums

By Dan Green

FHA mortgage insurance isn’t forever, and many homeowners have the option to cancel FHA MIP; today’s mortgage rates for conforming, USDA, VA, FHA, and jumbo loans; and, using 15-year fixed rate mortgages to save money for your future.

Cancel Your FHA MIP Via Your Home Equity

Cumulative change in home values since 2011 - Growella
Cumulative change in home values

It’s been a good few years for homeowners with FHA-backed home loans. A rise in home values is helping people to get rid of their FHA mortgage insurance premiums (FHA MIP) forever.

Home equity is making is it possible, and today’s U.S. homeowners have a lot of it.

Since hitting a bottom in late-2012, the housing market has turned in a series of strong years. Annual growth has hovered near six percent, and cumulative gains exceed 40 percent nationwide.

That’s $40,000 of additional home equity for every $100,000 in valuation, an increase that’s creating interesting opportunities for homeowners including making use of cash-out refinancing to prepare for retirement and using home equity to retire lingering debt.

Another opportunity afforded by home equity is for FHA-backed homeowners to use their home’s new equity to cancel FHA MIP.

Remember: most people use FHA loans because they want to make the lowest down payment possible on a home; there are no special qualification standards with the FHA loan, and the program only requires 3.5% down.

But, as home values rise, the value of having an FHA loan drops because an FHA with a loan-to-value 80 percent pays the same mortgage insurance as a maxed-out FHA loan, whereas, with other loan types, at 80% LTV, the mortgage insurance goes away.

This is why homeowners are refinancing out of the FHA and into conventional loans backed by Fannie Mae and Freddie Mac.

Conventional loans don’t require mortgage insurance unless your loan-to-value is over eighty percent. And, if you do pay mortgage insurance, it’s required only until that 80% marker is met.

Stick with the FHA loan, and you’ll pay FHA MIP forever. Refinance out and you’ll save.

Today’s Mortgage Rates

5-Day Mortgage Rate Trend - Growella
Mortgage Rate Trend

Mortgage rates are moving lower today, but not by much; the market’s been quiet.

Mortgage rate quotes vary by lender and that your actual quote will vary based on your loan size, your credit score, where you live; and, about a dozen other factors.

Remember to talk to two more lenders before settling on a rate, and choose the lender that offers your favored combination of service, rates, and cost.

Get An Aggressive Rate Quote

Get Today’s Rates!

You Can Fund Your Retirement With A 15-Year Loan

Comparing interest paid with 15-year fixed vs 30-year fixed - Growella
How much you’ll save with a 15-year mortgage

Using a 15-year mortgage is one of the best ways to save money in homeownership.

There are two reasons why 15-year loans reduce cost.

First, homeowners with 15-year fixed-rate loans get access to lower mortgage interest rates as compared to borrowers with 30-year fixed-rate loans. 15-year mortgages are less risky to mortgage lenders, which means lenders can offer them at lower rates.

Second, 15-year mortgages are paid off in half the time as compared to 30-year loans, which means that homeowners pay mortgage interest for half the number of year.

At today’s mortgage rates, a home buyer that opts for a 15-year fixed-rate mortgage will pay 47 percent less mortgage interest over the life of its loan.

In dollar terms, this is a reduction of $120,000 paid for every two-hundred fifty-thousand borrowed. Money like that can be used to pay for college, fund a retirement, or buy an investment property, among other options.

Despite the savings, though, according to Freddie Mac, only six percent of home buyers opt for 15-year financing. By contrast, 90 percent of buyers use the 30-year fixed-rate loan.

Partially, this is because 15-year fixed-rate loans compress the payback period of a loan into half as many years, which results in larger payments. These larger payments can challenge a homeowner’s budget and many prefer the smaller monthly obligation of a 30-year loan — even if that loan comes with a larger long-term expense.

15-year fixed rate mortgages aren’t for everyone, but when you can manage the payments in your budget, it’s worth consideration.

Know your options on today’s 15-year loans. Connect with one of our loan officers who will talk you through it.

Written by Dan Green

Dan Green is a mortgage lending expert and the founder of Growella. Prior to Growella, Dan was a six-time, top-producing loan officer; and, ranked repeatedly among the top 1% of loan officers nationwide. Dan's home buying expertise has been in print and on TV with The Wall Street Journal, NPR, Forbes, CNBC, and others.

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