Home » Blog » First Home » Is FHA Mortgage Insurance Permanent?
FHA mortgage insurance is permanent since 2013

Is FHA Mortgage Insurance Permanent?

FHA mortgage insurance has been required to be remove automatically when the current balance hits 78% of the original principle loan amount since 2001.

The removal of mortgage insurance may no longer be an option.  FHA mortgage insurance may be required as long as you have an FHA insured loan.

This is all part of HUD’s plan to remain financially healthy is to keep FHA home loans insured as long as you have FHA financing on your home.  This is the Monthly (annual divided by 12 months) premium fee that is added to your monthly home loan payment.

Here are the correlating quotes from the HUD portal website (Page 54):

“Revised Premium Cancellation Policy
Under a policy change made in 2001, FHA has been cancelling required mortgage insurance premiums (MIPs) on loans for which the outstanding principal balance reaches less than 78% of the original principal balance.”

However, FHA remains responsible for insuring 100% of the unpaid principal balance of a loan for the entire life of the loan, such loan life often extending far beyond the cessation of MIP payments.

As written, the timing of MIP cancellation is directly tied to the contract mortgage rate, not to the actual loan LTV.

The current policy was put in place at a time when it was assumed that home price values would not decline, but today we know that LTV measured by appraised value in a declining market can mean that actual LTVs are far lower than amortized mortgage LTV, resulting in higher losses for FHA on defaulted loans.

Analyses conducted by FHA’s Office of Risk Management projects lost revenue of approximately $10 billion in the 2010-2012 vintages as a result of the current cancellation policy. The same analyses also suggest that 10%-12% of all claims losses will occur after MIP cancellation.

This excerpt of the HUD document talks about reversing the automatic removal of FHA mortgage insurance at 78% loan to value (principle balance as percentage of original loan amount), and requiring mortgage insurance for the life of the loan.

Need a Second Opinion? Click Here for Help!

This will greatly change the way people feel about FHA financing.

Final Thoughts

I think it’s inevitable that annual MIP will increase in 2013, more than once.  I also think that the removal of mortgage insurance may change.  I am watching this one closely.

There have even been suggestions that MIP on FHA loans is required as long as you have an FHA mortgage.  That means you would now have to sell or refinance using conventional financing to get rid of FHA mortgage insurance.

About the Author

Scott Schang

A 20+ year veteran of the Mortgage and Real Estate industry, I am passionate about educating and empowering consumers. I have been writing about consumer protection issues and making sense of complicated real estate and mortgage topics on this website since 2007

Do You Have Questions About Qualifying?

Find a Mortgage Expert Near You

Find a Mortgage Expert by State

Alabama

Alaska

Arizona

Arkansas

California

Colorado

Connecticut

Delaware

Florida

Georgia

Hawai'i

Idaho

Illinois

Indiana

Iowa

Kansas

Kentucky

Louisiana

Maine

Maryland

Massachusetts

Michigan

Minnesota

Mississippi

Missouri

Montana

Nebraska

Nevada

New Hampshire

New Jersey

Ohio

Oklahoma

Oregon

Pennsylvania

Rhode Island

South Carolina

New Mexico

New York

North Carolina

North Dakota

South Dakota

Tenessee

Texas

Utah

Vermont

Virginia

Washington

Washington DC

West Virginia

Wisconsin

Wyoming

  • ow ! it is a nice information related website. I already bookmark this website & visit regularly.I have also a website.you can also find something new information from my site http://www.articlesface.com