Home Buying in Portland>Question Details

First, Other/Just Looking in Oregon

Can I pay off my FHA MIP early?

Asked by First, Oregon Sun Mar 29, 2009

I am about to do an FHA refi. Can I (sometime over the next 18 months or so) pay off my 5 years worth of FHA Mortgage Insurance so my payments will decrease sooner?

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I hope to clarify this a little... No.

The (UF)MIP or (Up-Front) Mortgage Insurance Premium is the upfront fee you pay either in cash at close or financed into the loan. The MMI or Mutual (sometimes called Monthly) Mortgage Insurance is your monthly premium which is included in your payment. This MMI is an annual premium which is to be remitted monthly, it must be paid for 5 years regardless of your LTV (loan to value) if after 5 years your LTV is 78% or less it may be canceled on loans originated after 1/1/01. If your loan term is 15 years or less the 5 year rule does not apply.

As far as sticking it into a savings account, first compare your interest dividend vs. the interest savings on your mortgage loan or any other consumer debt for that matter when the funds become available to you... my money would be on the mortgage interest savings in the long term even if you have to stick out the MMI a few years more :)

I am an FHA licensed lender here in Oregon, feel free to contact me if I may be of additional service. Best of Luck!
1 vote Thank Flag Link Mon Mar 30, 2009
Directly from FHA -

FAQ : When can I stop paying my monthly FHA mortgage insurance premium?

Solution Details : Termination of the FHA monthly mortgage insurance premium (MIP) is based on several factors including: the loan term, loan-to-value (LTV) at loan origination and regulations in place when the loan is closed.

Generally, loans closed prior to January 1, 2001 will not be eligible for termination of MIP, which is collected as part of your monthly mortgage payment.

For loans closed on or after January 1, 2001, FHA's MIP will be automatically terminated under the following conditions:

1. For mortgages with terms more than 15 years, the MIP will be terminated when the Loan to Value (LTV) ratio reaches 78%, provided the borrower has paid the MIP for at least five years. If the LTV reaches 78% and the borrower has not paid MIP for at least five years then the borrower must continue to pay MIP until the five year requirement is met.
2. For mortgages with terms 15 years and less and with LTV ratios of 90% and greater, the MIP will be terminated when the LTV ratio reaches 78%, irrespective of the length of time the borrower has paid the MIP.
3. Mortgages with terms 15 years and less and with LTV ratios of 89.99% and less will not be charged MIP.

For loans closed and insured under the Hope for Homeowners Program, the annual MIP is collected monthly for the life of the loan.

Note: The MIP cancellation provision excludes those loans not insured by the Mutual Mortgage Insurance (MMI) fund. Although the MIP will be terminated as described, the FHA insurance will remain in force for the loan's full term. This MIP termination provision only applies to loans where the borrower also paid an Up-front MIP at closing. FHA will determine when a borrower has reached the 78% LTV ratio based on the lesser of the sales price or appraised value at loan origination. For example, if the lesser of the sales price or the appraised value at origination was $100,000, when the loan amount reaches $78,000, HUD will no longer collect MIP on the loan.

FHA's regulations do not permit a borrower to submit a new appraisal to reach the threshold for termination of MIP. Termination of MIP will normally be based on the scheduled amortization of the loan. However, borrowers may reach the 78% threshold in advance of the scheduled amortization because of prepayments of loan principal. A borrower whose loan reaches the 78% LTV threshold sooner than projected because of prepayment may have the MIP terminated (but not sooner than five years from loan closing for loans with terms greater than 15 years) if the borrower has not been more than 30 days delinquent in paying the mortgage payments during the previous 12 months. The borrower must submit a termination request to the lender and the lender must provide the borrower's request and supporting documentation with respect to the mortgage payments during the last 12 months to FHA for such termination.
0 votes Thank Flag Link Fri Jun 19, 2009
Hey First!

Janeese nailed this one! Great answer. That old MI is no fun. You may want to look at a no MI Refi. They are out there you know. Better to pay a higher rate than the MI sometimes. Look into that as an option.

Great answer Miss Jackson!

Regards;

Dirk Knudsen
Re/Max Metro Gold
Web Reference: http://www.theknudsens.com
0 votes Thank Flag Link Sun Mar 29, 2009
So if someone (like myself) decides that after one year of paying the MI premiums for FHA that I want to refi with 20% equity, do we still have to pay off the 5 years of MI for the FHA loan or does that cost just stop and your refi pays the remaining balance NOT including the remaining MI you would have paid?
Flag Tue Jan 15, 2013
My understanding is that for FHA mortgages (beginning in 2001), MIP must be carried for the first five years no matter what. But, after that, it will be dropped when your equity (or, the percentage of the home's current value that you own either by making mortgage payments or by increases in the value of the home), reaches 22% of the original appraisal (or, the value of the home when you bought it). However, I don't know why they wouldn't let you prepay (who wouldn't want money upfront). But, I also don't understand why you'd want to give up the rights to your $$$ unnecessarily (you could put it in an interest-bearing account and pocket the interest yourself). Just another way to approach it. You might check with an FHA specialist/mortgage broker like Rodd Miller at Pacific Residential Mortgage/503-352-7110 or rodd.miller@pacresmortgage.com.
Janeese Jackson, Principal Broker
Real Estate Resource
503-709-0802
jj@janeesejackson.com
0 votes Thank Flag Link Sun Mar 29, 2009
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