With the new FHA Streamline Refinance program – and the recent changes in the FHA PMI rates – we’ve had several people ask, “When Can I Cancel and Get Rid of FHA Mortgage Insurance Premium?” In other words, When Does FHA PMI Stop ?
The good news is that unlike the USDA Loan Program (that also saw recent changes to it’s PMI rates) you actually CAN “get rid of FHA PMI!”
You have two types of Mortgage Insurance (PMI) with FHA. If you took your loan out prior to 2004, the Upfront FHA PMI Premium charged could be partially rebated if you refinanced or sold within 5 year of getting the home. That changed, as the FHA Insurance Fund started going under water, and the Upfront FHA PMI Insurance Premium is no longer refunded. So if you get a mortgage in June, you are charged an initial premium of 1.75% of your loan amount, and if you refinance that loan 2 years later to another FHA Home Loan – you will pay another UpFront Premium, and none of the 1.75% you paid this year will be refunded.
The “Monthly” charge is what you can stop paying. This charge is “technically” called FHA MIP (mortgage insurance premium) but since it’s just kinda semantics – we refer to it all as FHA PMI.
For FHA Loans Taken Out PRIOR To June, 2013 FHA differentiates between a 30 year and 15 year fixed loan as to when you can cancel your FHA PMI :
- 30 Year Loan Term – must pay the monthly insurance premium for a minimum of 60 months (5 years) and the loan must reach 78% loan-to-value (LTV) as a result of paying the loan down (amortization). LTV is not determined by the new home value, it’s determined by the original sales price of the home. LAYMAN’S TERMS: If your original sales price was $100,000 – multiply that by 78%. You need to get your mortgage balance down to $78,000 before FHA will allow you to drop the PMI.
- 15 Year Loan Term – For Loans that closed prior to June, 2012 – there is NO requirement that FHA PMI / MIP be paid for 60 months if the LTV is below 78%. LTV is based on paying the loan balance down, you calculate this the same way you do for a 30 year mortgage. Remember, this is NOT based upon the current appraised value or the current tax value of the house.
For FHA Loans Taken Out AFTER June, 2013 –
- 30 Year Loan Term: You will pay FHA PMI / MIP for the life of the loan if you make less than a 10% down payment. As long as you have this FHA Mortgage – you will have FHA PMI on a monthly basis. If you make a 10% or more down payment, the Annual (monthly) FHA PMI charges will remain on the loan for 11 years, and you reach a 78% loan to value (as described above – meaning from the original mortgage balance).
- 15 Year Loan Term: You will pay FHA PMI / MIP for the life of the loan if you make less than a 10% down payment. This was a huge change in the guidelines. If you make a 10% or more down payment, the Annual (monthly) FHA PMI charges will remain on the loan for 11 years, and you reach a 78% loan to value (as described above – meaning from the original mortgage balance).
The FHA PMI Rates 2013 are different than they have been – so if you’ve been looking for a house for a while, check out the best FHA PMI Rates.
How Can I Determine When I Will Reach 78% LTV?
There is no set number of months it will take because it varies slightly based on the interest rate and size of the down payment. If you use Excel – you can easily find an amortization program that will tell you when your mortgage will be at the “sweet spot!” For a 30 year mortgage with 3.5% down, it will take between 9-10 years to get down to 78% LTV.
A 15 year fixed mortgage will pay down to 78% LTV between 2-2.5 years if you made a 10% down payment. Remember, FHA does not require 15 year loans to keep the annual MIP for a minimum of 60 months if you took your mortgage out prior to June 2013.
How to Remove or Cancel FHA PMI Quicker
Assuming you got your FHA Home Loan prior to June of 2013 – it’s possible to get rid of the FHA PMI payments quicker if you make extra payments, but you still have to wait the five years (60 payments) before it can be taken off if you have a 30 year mortgage.
Refinance -If you you think you have 20% equity in your home but don’t meet the 60 months or 78% LTV based on the original purchase price or appraisal criteria, it may be possible to refinance into a conventional loan. If you don’t have 20% equity, and have VA home loan eligibility, you could refinance into a VA loan. A VA loan requires no monthly mortgage insurance and we can go up to 100% LTV on a VA refinance. Unfortunately, even though it’s cheaper – you can not refinance from a FHA home loan to a USDA home loan in North Carolina.
Can I Cancel FHA PMI if My Home Upside Down in Value?
It might not seem logical – but if you’ve been in your home for 5 years… and you’ve paid it down based upon the ORIGINAL sales price to the 78% mark, you can cancel the annual FHA PMI you are charged on a monthly basis… even if you’re home is upside down in value.
How Do I Cancel My FHA PMI?
This is the easy part….FHA automatically drops the monthly FHA PMI based on the amortization schedule. You don’t have to order an appraisal and technically, you don’t even have to request the removal. However, we suggest contacting your servicing bank to make sure they are aware of your projected date for your PMI removal!
Are you ready to do a FHA Streamline Refinance? We offer the cheapest mortgage rates available! If you have more questions about When Does FHA PMI Stop – call Steve Thorne 919 649 5058