 Canceling FHA mortgage insurance
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 Dear
Dr. Don,
I was told by my bank that they could not remove the PMI from my loan because it is an FHA loan, which they bought. I was also told that what I was paying, $198 per month, was high and I should just refinance at a higher rate. Is this true?
-- Tamara Tedious
 Dear
Tamara,
FHA loans don't have private mortgage insurance, or PMI. Instead
they carry a government guarantee. Borrowers pay for that guarantee
in one of two ways: they pay a mortgage insurance premium, or MIP,
at closing and/or they pay a monthly mortgage insurance premium
along with their mortgage payments.
That fixed rate applies to all Series I savings bonds
issued in the six months following the rate determination. The table
below is from the TreasuryDirect Web site and shows the fixed-rate
announcements since the Series I savings bonds were first issued
in September of 1998.
For loans that closed after Jan. 1, 2001, if the borrower
paid an upfront premium the monthly MIP will fall off after the
loan reaches 78 percent loan-to-value, based on the initial purchase
price/appraised value of the home and the principal payments made
against the mortgage loan -- with a good payment history. HUD form
92900-b
refers to FHA mortgage insurance.
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HUD says: |
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So, if you didn't pay an upfront mortgage insurance
premium, the lender is right and you can't get out from under the
MIP while you're in the loan. Refinancing is an option, especially
if your home's value has appreciated enough to allow you to carry
conventional financing with no PMI. A HUD FAQ
page has additional information on canceling mortgage insurance
on an FHA loan.
Getting out from under a $200 per month expense might
justify a refinancing, even at a higher interest rate, but exchanging
MIP for PMI doesn't make much sense. After you take a look at a
PMI
calculator, take a look at Bankrate's refinancing
calculator to see if it makes sense for you. In general, the
longer you expect to be in the house, the easier it is to justify
refinancing.
If you still have to pay mortgage insurance, but are
considering refinancing anyway, you should try to put it off until
after Jan. 1. Under a new law that goes into effect then, you may
be able to deduct mortgage insurance -- either PMI or the kind the
FHA charges -- from your taxes. See the Bankrate feature "New
tax deduction created for mortgage insurance" for the details.
To ask a question of Dr. Don, go to the "Ask
the Experts" page and select one of these topics: "financing
a home," "saving & investing" or "money."
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