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I've always thougths that FHA mortgage insurance drops off after you have 78% LTV and pay a minimum of 5 years, and I took that to mean that you could double up on the payments or make a large principle payment to reach 78% LTV...but I noticed on the loan paperworks that it says "Term of Monthly Premium: 105 months".
Looked a little bit online and I saw conflicting information but some said that the 78% has to be reached through regularly monthly payments, not through extra principle payments. So in reality, it's not 60 months of PMI, but 105 months (almost 9 years!).
Well, it's about to be permanent, for the life of the loan, in 33 days, which will force a lot of people into refinances down the line, or into Conventional Loan products w/5% down. Paying for the sins of the aughts.
When a mortgage that is subject to PMI reaches an 80% loan-to-value ratio (LTV) based upon the initial amortization schedule or pre-payments, the borrower may make a written request that PMI be canceled.
Automatic Termination
When a mortgage that is subject to PMI reaches a 78% (LTV) as a result of the initial amortization schedule, the PMI must be automatically terminated provided that the borrower is current on payments. If the borrower is not current, the PMI must be automatically terminatedwhen the borrower becomes current; cancellation will take place the first day of the following month. With a 30 year mortgage, it will take eight or ten years on average to reach the point where you can cancel the insurance.
Its a back door way of getting everyone to pay for the ones who default. How many people honesty need FHA after they get down under 78%? And for those who do, how long until they can refinance conforming? Charging a fee under 78% is just asking all the good loans to bolt.
Perhaps analysts are predicting a huge jump in interest rates soon so people cant bolt.
Perhaps analysts are predicting a huge jump in interest rates soon so people cant bolt.
Of course. PMI will stay forever on the new loans. Why? Interest rates will be going up. It doesnt take a rocket scientist to know that rates are at thier lowest ever, only one direction to go..... up.
If someone only has income to afford a $972 house payment, lets see what happens when the interest rate goes up and home affordibiliy go down.
$240,000 x 80% at 4.5% interest equals a payment of $972.84
$226,260 X 80% at 5.0% interest equals a payment of $971.65
$214,062 X 80% at 5.5% interest equals a payment of $972.34
$202,500 X 80% at 6.0% interest equals a payment of $971.27
$192,188 X 80% at 6.5% interest equals a payment of $971.80
You can see that a 2% increase in an interest rate would lose you about $48k of purchasing power in this price range. The house price goes down as more money goes to the bank. And because income is stagnant, people will not be able to afford a more expensive house, so sellers are going to need to drop their price in order to make the sale.
Sooo.... People that bought at $240k their homes might suddenly be worth $192k in 3 years or 7 years down the road. $48k loss. The PMI for the life of the loan is going to help recover money to pay out those losses when interest rates go up and people short sale, or who cant sell simply walk away from thier loans.
That's why you refinance into a conventional loan as soon as you can...They are upping their PMI and changing their terms to pay for all of the people who defaulted. It's forcing all of the people current on their loans to refinance out of FHA. I don't think it's a good thing for them to do. They should at least have PMI rates based on a sliding scale according to credit score, with the lower scores paying more PMI than the higher ones.
Automatic Termination??????
When a mortgage that is subject to PMI reaches a 78% (LTV) as a result of the initial amortization schedule, the PMI must be automatically terminated provided that the borrower is current on payments. If the borrower is not current, the PMI must be automatically terminated when the borrower becomes current; cancellation will take place the first day of the following month. With a 30 year mortgage, it will take eight or ten years on average to reach the point where you can cancel the insurance.
PMI/MI has been the topic of the week - have discussed with various homeowners across the country.
Automatic Termination? Unrealistic, because there is no mechanism the tracks value the force a lender into removing PMI off a mortgage. The borrower has to initiate a review with the lender. The borrower is required an appraisal done by one the lenders "certified" appraisers. The bank's appraiser will be really conservative!!! So be sure on your of your value, or you are going to waste the $400/$500 appraisal fee (you pay for).
Two days ago was speaking the Dana in Colorado Springs, a single mother that is struggling with her mortgage payment. She had been in her FHA loan for 8 years. Over the last year has made late payments, with her low credit, doesn't qualify for refinancing. She is current on her payments so would not qualify for a loan modification. I asked her what her value is, and calculated her LTV at 58%. I told her the needed to contact her lender right away to have the mortgage insurance removed. The link you provided above, I just copied and emailed her the link. Thank you for posting.
Again there is no mechanism in place that the mortgage insurance automatically drops off.
This topic hits home for me - brought my home did a conventional 30yr 90% financing playing PMI through Washington Mutual. We later refinanced into a 15yr loan. Became aware we had been still paying PMI. Looking back at the land values - 2 years into our loan the value jumped up. If I would of approached my lender then, I could of had the PMI removed. Instead paid (wasted) thousands that was not applied to my loan.
If we could turn back time knowing what we know today, learning from our mistakes and using our knowledge to start over. That would be priceless......
Is the only way to avoid PMI is to have 20% down? What about 15 year loans with 10% down? I thought those didn't have PMI or is that also changing?
N.Bound - any loan more then 80% LTV is considered a high risk loan. Mortgage insurance (not be to be misconstrued with hazard insurance) protects the interest of the bank, so they can charge a higher rates. It doesn't matter if you have a 10,15,20,30,or 40 year term, if you have less than 20% equity either by purchasing or refinancing, that's when you get hit with the PMI/MI.
Our country is really screwed up, we are setting our country up for another financial disaster. Again the rich get richer and the poor get poorer.
I have noticed with modified loans. Lenders are adding mortgage insurance to modified loans, where no mortgage insurance was on the loan previously. On a majority of modified loans with a step rate increase over time. Initially the interest rate is really low, which makes the principle payment really low. Over time interest rates raise, add the additional PMI/MI payment. Over time the payment will be higher than before.
I thought prior to the five year term there was a three year term, and you could have your home appraised to have your FHA MI removed.
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