Thinking about refinancing your existing mortgage, or taking out a new one? Don’t delay, or it could cost you. Some Federal Housing Administration (FHA) changes involving tighter lending standards and higher mortgage insurance premiums already took effect on April 1st, while others are on the way – and these changes could make a dent in your wallet.
So what’s prompting these changes? They come in the wake of the FHA’s Mutual Mortgage Insurance Fund – which is used to fund homeowner programs – announcing a deficit of over $16.3 billion for fiscal year 2013.
You Might Have to Pay Mortgage Insurance for the Life of the Loan
After the FHA changes come into effect on June 3rd, most homebuyers with a case number after this date will have to pay mortgage insurance for the life of the loan – unless they put a down payment of more than 10 percent, according to Mortgagee Letter 2013-04 issued by the U.S. Department of Housing and Urban Development (HUD) on January 31, 2013. Read the letter here.
This means you’ll have to either put down more money upfront, or you’ll face paying mortgage insurance over the life of your loan.
According to the rule changes, if you have an FHA case number dated after June 3rd, then you must pay mortgage insurance for either 11 years, or the life of the loan, depending on how much you finance. If you put down 10 percent or more, then the annual mortgage premium can only be eliminated after 11 years. If, however, you get a case number for a mortgage or refinance before June 3rd, you can stop paying mortgage insurance once you reach 22 percent equity in your home – and the savings can be significant.
There Will Be Minimum Equity Increase for Jumbo Mortgages (over $625,500)
Do you have at least 5 percent equity in your home, or for a down payment?
If you are considering refinancing or getting a mortgage over $625,500, the required down payment (or equity in the home if it’s a refinance) will rise from 3.5 percent to 5 percent of the home value, according to a FHA Federal Register Notice dated February 6, 2013. This means that your mortgage amount cannot exceed 95 percent of the home value.
Mortgage Interest Rates are Increasing – Regardless of the Loan You Have
If the upcoming FHA changes don’t seem like much to be concerned about, consider this: According to the Mortgage Bankers Association (MBA), mortgage interest rates are predicted to reach a whopping 4.3 percent by the fourth quarter of 2013.* And that could be a reason in itself to refinance now – regardless of if you’ll be affected by the FHA changes. Let’s take a look at how much of an impact this can have on your wallet. Below is a comparison of a $400,000, 30-year fixed-rate mortgage with an interest rate of 3.76 percent (the March 29, 2013 average according to the MBA), and the predicted 4.3 percent:
|3.76 percent||4.3 percent|
|Total Interest Paid:||$267,703.83||$312,614.88|
With just an increase of a little over half a percent in interest rates, the monthly payment is $124.76 higher, with almost $45,000 extra paid over the life of the loan in interest. Now that sounds like a good reason to refinance.
This article appeared on Yahoo! Homes on 5/2/13