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How FHA loan insurance works

Dr. Don TaylorDear Dr. Don,
I have an FHA loan. If I had to pay an upfront MIP, why do I also have a monthly risk-based insurance premium?
-- Rob Redouble

Dear Rob,
Borrowers financing with Federal Housing Administration loans pay insurance premiums for the federal government guarantee that the lender will not lose any principal on the transaction. The mortgage insurance premium, or MIP, is split between an upfront payment and a monthly insurance premium.

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The upfront mortgage insurance premium is 1.5 percent for 30-year fixed-rate mortgages. Any unused portion of this upfront MIP may be refunded within the first seven years of the loan. The monthly insurance payment is based on 0.5 percent per year of the loan amount, but is not refundable, only cancelable.

Since 2001, the government has allowed the monthly insurance payment to be canceled when the outstanding principal balance reaches 78 percent of the original purchase price, providing the payments have been made for at least five years on a 30-year loan.

A 15-year FHA loan when the homeowner made at least a 10 percent down payment wouldn't have a monthly mortgage insurance premium.

Thumb through the FHA Library to learn more about FHA loans. Although the site is maintained by a lender, it is laid out well and can answer most questions you have about these loans.

-- Posted: May 10, 2005





National Mortgage Rates
Rates may include points.
30 yr fixed mtg 4.25%
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5/1 jumbo ARM 3.55%

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