Mortgage

Zillow: Here’s how a 50 bps FHA premium cut would break down

It would help first-time homebuyers, but worth the risk?

President Obama will be formally announcing at noon a story first reported Wednesday by HousingWire, that he will direct the Federal Housing Administration to reduce annual mortgage insurance premiums by 50 basis points, from 1.35% to 0.85%.

Zillows (Z) Allison Paoli ran the numbers on what this could mean for first-time buyers.

“On a $175,000 home loan with less than 5% down, this MIP reduction will equate to a savings of $818 per year or $3,932 over five years,” Paoli said.

She notes that FHA annual mortgage premiums are paid in 12 monthly installments every year, in addition to principal, interest and insurance.

These premiums last the life of the loan regardless of how much equity is built into the loan.

“The announced changes will take the annual MIP from 1.35% to 0.85% for loans with less than 5% down, and from 1.30% to 0.8% for loans with more than 5% down,” Paoli said.

Click to enlarge

Source: Zillow

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