FHA Mortgage Rates Hit New Lows, Insurance Premiums Rise


Posted on Oct 26, 2012

FHA mortgage rates have dropped sharply since the start of the year, making new, all-time lows nearly weekly. Despite falling FHA mortgage rates, though, the annual cost of an FHA mortgage is mostly unchanged, the result of rising FHA mortgage insurance premiums.

The "effective interest rate" of an FHA-insured mortgage belies today's low rate environment.

You see, the FHA doesn't make mortgages. It insures the banks that do. The FHA makes mortgage guidelines by which a loan must abide to get FHA-insured and when banks underwrite home loans to those guidelines, the FHA offers default protection to the bank.

The FHA is an insurer of loans NOT a lender.

As an insurer, the FHA is subject to some of the same risks as, say, a home insurance company. The amount of premiums it collects must be higher than the amount of claims paid or the FHA risks bankruptcy. Where the FHA differs from traditional insurers, though, is that, as a federal agency, it is required by law to maintain $2 in reserves for every $100 insured.

In November 2011, an audit showed that FHA held just $0.24 per $100 insured.

It's no great surprise, therefore, that the FHA has raised its mortgage insurance premiums 4 times in the last 4 years. As the number of default claims increased between 2007 and 2011, the FHA risked running out of money. When claims outpace premiums, insurers raise premiums.

back to top


Get Title Quote Here

Contact Us

First Name:*

Last Name:*

Phone:*

Email:*

Tell us more:


 

Mega Title, LLC

721 Route 34, Suite 3
Matawan, NJ 07747
Phone: 732-242-9835
Toll Free: 877-550-MEGA
Get Directions | See Detail

Connect with Us:

Testimonials

  • Samah and her team at Mega Title were efficient and professional in
    handling our refinance closing. I had used them in a prior refinance
    and was so impressed with the attention to detail that I came back
    this time again. They are accomodating to your schedule, meet the
    deadlines so they don't waste your time and most of all treat you as
    if you are their most important customer at all times. I couldn't ask
    for better service - they took care of everything. Just had to show
    up and sign.
  • As a real estate attorney, I have dealt with numerous title companies.
  • I recently refinanced my home. Mega Title really made my life much easier.
  • I really appreciated the excellent service and caring attitude during my refinance.
  • I can't express how impressed I am with your customer service!

View All