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flineo, Home Buyer in Long Branch, NJ

Interest rate on FHA 15 year fixed is the same as FHA 30 year fixed?

Asked by flineo, Long Branch, NJ Wed Sep 30, 2009

Our mortgage guy told us that currently the interest rate on our FHA loan will be 5.25 whether it's a 15 year fixed or a 30 year fixed. Why is that? I'm thinking maybe we should go with a conventional loan (can put 5% down) and get a significantly better interest rate for a 15 year fixed. He said the MI on FHA is lower than conventional, but does it really pan out in the long run?

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Thanks for the kind words Flineo, glad to help.

I'd love the opportunity to provide you a quote. If you'd like to discuss privately, I'm at 773.931.2424 / crichter@luettmortgagegroup.com.

Best,
Chris
0 votes Thank Flag Link Thu Oct 1, 2009
Chris,

Thanks for your responses. My husband and I have decided to call around other FHA lenders and see if they will offer us a better interest than 5.25 for a 15 year fixed... and comparing lender fees while we're at it.
0 votes Thank Flag Link Thu Oct 1, 2009
FOR RUNNING YOUR CALCULATIONS ONLY AND NOT TO BE CONFUSED WITH A QUOTE.

See, you know that was a disclaimer given the ALL CAPS :)

I know nothing about your closing costs. Perhaps the other mortgage guy is crediting all of the costs or something that would make 5.25% on the 30 Year make sense, but that seems high. Absurdly high on the 15 year.

If you want to run numbers on a Monmouth County FHA Loan, use 4.25% on a 15 year and 5% on the 30 Year.

@ $200,000 amount financed...P&I only
15 year: $1,504.56
30 year: $1,073.64

You mentioned you had 5% down if necessary. What if you put down 3.5% and saved the rest?

One idea that I've seen that makes a ton of sense if the 15 year is really a toss-up for you----

Keep the 1.5% "extra" that you have available. If you're "sort of comfortable" with the 15 year, but not quite, then take the difference (about $430/month) and put the 1.5% that you didn't put down somewhere that is very liquid. It probably won't earn stock market returns, but you'll fee safer.

We have never spoken, I don't know your life situation, whether you will receive a massive inheritance, or whether your family just found Black Gold on your ranch is now moving to 90210. I only point out the idea because it made one couple decide to go with a 15 Year and it was probably right for them.

My $.02,
Chris
0 votes Thank Flag Link Wed Sep 30, 2009
Thanks all, that's given me a little insight. I just hope the higher rate doesn't put a 15 year loan out of our reach... I did all calculations based on a lower interest rate. We shall see!
0 votes Thank Flag Link Wed Sep 30, 2009
Thanks for the links Chris. I'll check them out. Flineo: I am NOT licensed in your state.
0 votes Thank Flag Link Wed Sep 30, 2009
Bill, that's a really good answer. From top to bottom, good answer.

Flineo, currently, the spread or difference between the 30 and 15 is about .75%. That's historically greater than average. That gives more incentive than normal to go with the 15 year FHA over the 30.

To Bill's point, I posted a comparison on the Conforming v. FHA at 5% a little ways back. That's here:
http://www.luettmortgagegroup.com/mortgagecenter/fha/11331-c…

The FHA mortgage insurance premiums are up for change again. There was a one-year moratorium on the 'risk-based' (read: credit score driven) levels for up-front mortgage insurance premium that expires soon...well, tomorrow.

Many credit scores will save about .35% ($350/$100,000 financed) up-front and the annual premiums paid monthly will dip by about .05%.

The market is moving strongly towards an FHA-friendly environment when you include the Fannie changes slated for December. I didn't cover the PMI changes, but that's here:
http://www.luettmortgagegroup.com/mortgagecenter/daily-updat…
0 votes Thank Flag Link Wed Sep 30, 2009
It would make more sense to stay with FHA. FHA rates vary from lender to lender. If the Loan Officer says the rate is the same, it means it is the same with that particular bank and perhaps he can only get that rate. The rate on a 15 year note is typically about 1/2% lower than a 30 year note (supposedly). For example, one lender I work may offer a rate of 4.75 however, the 15 year note is 4.5%. The reason for the small difference can also be that the lender just doesn't want 15 year mortgages and wants to focus on buying 30 year mortgages for now.

The FHA mortgage insurance (MI) premium is about 1/2 as much (use .0055 calculation for 30 years and .0025 for 15 year to figure the MI payment). If you put 5% down on a conventional loan, the rate may be slightly lower however the MI payment is almost double that of FHA (.0096 in some states due to bad market). FHA will also allow the seller to pay up to 6% of the closing costs and escrow, whereas conventional only 3% maximum paid by seller. FHA has it's drawbacks, of course. It shouldn't be used to buy a house in poor condition (short sale), however, you can use FHA (203K loan) to buy a house that is a HUD home and get an extended loan to pay for repairs. You may also be able to buy a HUD Foreclosure with the $100 down payment program which allows the bank to repair up to $5000 on the house and pay up to 3% of your closing costs. Woohoo!
0 votes Thank Flag Link Wed Sep 30, 2009
To explain further: the only reason we're considering FHA is because putting just 3.5% down would keep a little extra cash in our pockets for moving expenses and new appliances. But we'd be willing to put 5% down and get a conventional loan if that makes more sense in the long run. Thoughts?
0 votes Thank Flag Link Wed Sep 30, 2009
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