The Costs and Consequences of New FHA Mortgage Changes

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Steve Jolly, Real Estate Broker and owner of, shares the latest news on the recently announced changes with FHA Mortgages. Steve explains the dramatic increase in cost and other unintentional effects of this policy change

Steve Jolly of Nashville Real Estate Now

Steve Jolly

It is estimated that the total cost of Mortgage insurance would increase more than $50,000 over the life of a $200,000 loan.

On January 31, the new changes were announced by the federal government. The changes include an increase in the rate of mortgage insurance premiums and the duration of the required insurance for FHA insured loans. The changes come in two phases. The rate increase is effective April 1, 2013 and the duration increase is effective on June 3, 2013.

The reason for the changes is a need to improve the Mutual Mortgage Insurance Fund. This fund pays the lender up to 20% of the value of the loan if a homeowner defaults on their mortgage. This fund was depleted during the economic downturn. The future value of the fund is currently negative and there is a slight chance that the capital reserves could be wiped out sometime in the next seven years.

In most cases, the rate increase in only 10 basis points and it is waived for many streamlined FHA refinances. The rate increase is the smaller portion of the total new costs.

The big change is the duration of time the mortgage insurance is required. For loans with less than 10% down, the mortgage insurance stays in effect for the life of the loan. “When the MIP stays in place for the life of the loan, it will hit your wallet hard,” Jolly said, “It is estimated that the total cost of Mortgage insurance would increase more than $50,000 over the life of a $200,000 loan.”

Not only will it increase the cost of a loan, but it will also affect home affordability and the current mortgage market share. “If you plan to buy with an FHA mortgage this year, I recommend that you do it now,” Jolly continued.

Those interested can see more details of this change by going to FHA Mortgage Costs are Skyrocketing. Steve Jolly is one of the Top Real Estate Brokers in the Greater Nashville Area and writes frequently about Nashville, Real Estate and Marketing.

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