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How the FHA Reduced Mortgage Insurance Premium Can Benefit Home Buyers

Ever since the housing bubble burst in the early 2000s, the country has been on a slow but steady recovery. The government initiated a number of programs and incentives to help promote spending in the housing market, and even now in 2015 that trend continues. In January, President Obama made an announcement that the government would slash insurance rates on all Federal Housing Administration mortgages by half. This reduced rate is going into effect, and it can make a big impact on those looking to purchase their home.

Federal Housing Administration loans insures FHA mortgages which are one of the most popular ways to finance a new house. They're often easier to qualify for, come with rock-solid stability, and lower interest rates than many other options out there. These are loans that are insured and backed by the federal government, and that is why the US government is able to reduce those insurance rates so drastically.

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So what does this premium reduction mean, exactly? Here are some numbers to help give you a clearer idea.

  • Around 20 percent of home buyers use FHA mortgages in many areas around the nation, making it one of the most popular options.
  • In many parts of the country, homeowners will save an average of around 900 dollars per year on their mortgage thanks to the reduction. This number will vary depending on where you call home.
  • Government estimates suggest that around a quarter million people will use an FHA loan to buy their home over the course of the next 3 years.
  • The price reduction has made a tremendous impact on the way people take out loans, and already the number of people who are refinancing through FHA loans has increased by 74 percent. This is thanks in large part to this reduction.
  • The exact reduction dropped the insurance premium from 1.35 percent of the total loan amount down to 0.85 percent and took effect on January 26, 2015.
  • The loan amount you owe will directly impact total monthly payments thanks to the fact that its insurance premium is based on the amount you owe. As a result, those with larger total mortgages will often see a larger price drop.

Add to these price drops the fact that current interest rates are at a very low level right now, and it becomes clear that there's really never been a better time to buy. As of February 2015, interest rates are lower than 4% on 30 year mortgages. Combine this with the new insurance premium reductions and you'll see just why so many people are excited about this new reduced mortgage insurance premium move.

There's no question that the US government is doing all it can to help the housing market recover from its slump, and with steps like this taking place it's doing a pretty good job. If you've been considering purchasing a home, now is a great time to look at FHA loans and what they could do for you.


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