The Federal Housing Authority, or FHA, cut the annual mortgage insurance premium interest rate by .25% for FHA borrowers who closed on their new homes on or after January 27, 2016, making now a great time to buy and save in the process!

What are FHA-backed loans?

The FHA does not extend mortgages to prospective home buyers or lend directly to buyers; however, they do back certain mortgages, providing lenders with additional protections. The FHA loan program is one that many first-time homebuyers find advantageous, with competitive interest rates and a down payment requirement of only 3.5% as opposed to the traditional 20% down required by conventional mortgages.

What is the FHA mortgage insurance premium?

Mortgage insurance is an insurance policy attached to your mortgage loan which helps to protect lenders against losses they would incur if you were to default on your mortgage loan. If you are making a down payment of less than 20% on your FHA-backed mortgage loan, you will most likely be required to carry FHA mortgage insurance. The amount charged to you for FHA-backed mortgage loan premium insurance depends on the amount of your mortgage loan, and how much you put down as a down payment. Your mortgage professional can help you to determine exactly what you'll be charged each month for mortgage insurance based on your specific home purchase and finances.

How much can I save from this recent interest rate cut?

You'll want to contact your experienced mortgage professional to determine exactly how much you can save under the most recent FHA mortgage insurance premium interest rate reduction, but some homeowners may save as much as $400 or more per year, per $100,000 borrowed! That savings can really add up over several years while you build equity in your home. If you apply that savings back into your mortgage by making additional payments against your balance owed to your lender, you will build equity at a greater rate and likely won't have to pay your monthly mortgage premium payments for as long as initially determined by your lender.