Mortgage insurance, may it be FHA or conventional, is not as confusing as it may seem. Especially if you have a qualified mortgage consultant that knows the ins and outs of mortgage insurance.
A quick glimpse of the different meanings :
- FHA -- MIP = Mortgage Insurance Premium (These are all for refinances & purchases - there are a few different things to know when it comes to streamline refinances) FHA Streamline Refinances -- knowing your options -- Part 2 of 2 I will break down the MI and MIP on streamlines at another time.
You have upfront MIP and annual MIP. As it stands now, until they change this to risk base pricing in the next few months, your upfront MIP is 1.5% of the base loan amount. Meaning, if you borrow $100,000 (base loan amount), your upfront MIP will be $1,500 and your new loan amount would end up being $101,500.
In regards to your annual MIP which is paid monthly is sometimes call MMI, monthly mortgage insurance. This is the easy part. No matter how much you put down, your annual MI is .5 percent of the base loan amount, which in my example is $100,000. You would take 5% and multiply it to the base loan amount which would be $500 annually. Then divide it by 12 months and this is your monthly mortgage insurance. = $41.67 per month as your MI.
Some basic rules to remember in regards to annual MIP. (which is really monthly MI when it's all said and done with)
- If your new loan term is great than 15 years, your upfront MIP is 1.5%, as stated above. And your annual MI is .50. Your annual MI will be terminated once you reach 78% LTV either by normal amortization or by making additional principal payments. But in order to cancel it by the 2nd method, you need to get a knew appraisal. In either case, MMI stays on for 5 years no matter what, even if you were to put down 20%.
- If your new loan term is 15 years or less, your upfront MIP is still 1.5%, but your MMI would only be .25 of the base loan amount. If you put 10% or more down on the 15 year scenario, then you would have no annual MI.
- The 5 year rule for annual MI would not apply for terms of 15 years or less.
- Conventional -- PMI = Private Mortgage Insurance There are different percentages depending on how much you put down. And since it can be a little complicated, depending on down payments and now fico scores, here is a blog that I did earlier to break it down. PMI (Private Mortgage Insurance); why you need it and the different types of PMI……
Now, with the changing guidelines of Fannie Mae and Freddie Mac, it's even more important to understand if you put less than 25% down and/or your credit score is less than 680, that you will be subject to extra add ons in regards to points. I compared these changes to FHA and showed you which avenues would be better, depending on your situation. Will Conventional loans be just like the Subprime mess?
Conclusion : Just to give you an idea if you put 5% down on either a FHA mortgage or a conventional mortgage, here is your difference in monthly mortgage insurance. For a FHA, you MMI would still only be .50. If you went conventionally, your MMI would be .78 of the loan amount. Now, don't forget that you will have upfront MIP on a FHA loan. But then again, your ad ons would be much higher on the conventional loan since you would be putting 5% down. Does this now sound confusing? Yes, it very well could, hence why you would need the help of a true mortgage professional that would understand all of these options. Helping you make the correct decision and not what would be easier for you.
Mortgage Insurance Series :
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Copyright © 2008 by Jeff Belonger