The Federal Housing Administration (FHA) announced that it is dropping its monthly mortgage insurance premium (MIP) by half a percentage point, from 1.35 percent to .85 percent. According to a fact sheet released by the White House, the average first-time homebuyer will save approximately $900 each year on mortgage payments. The reduction goes into effect January 26, 2015. Existing homeowners who refinance into an FHA mortgage should see similar savings.

What’s the MIP?

The MIP is paid monthly by FHA home buyers as part of their mortgage payments. Because loans insured by the FHA have low down payment requirements, borrowers must pay an MIP to insure against any losses if the homeowner defaults on his or her mortgage. The FHA does not lend money directly to consumers – it insures the loans made by lenders that meet FHA guidelines. Because of borrower defaults, the FHA had a deficit of more than $16 billion in 2012, but has now eliminated that deficit and is operating in the black.

Making home ownership more affordable

Reducing the MIP is intended to make home ownership more affordable, and encourage first-time buyers to shop for homes. The housing market has been sluggish lately, and first-time buyer levels are at their lowest in 27 years, according to the National Association of Realtors. The White House estimates that the new rate will allow more than 800,000 people to save on their existing mortgages through refinancing, and let some 250,000 people buy a new first home over the next three years.

Take advantage of these new rates

If you’re a first-time home buyer or if you’re interested in refinancing your existing home, Embrace Home Loans can help you understand what the new FHA mortgage insurance premium rates could mean to you. Your personal mortgage specialist will help you evaluate your loan options, and make sure you get the financing you need. Contact us today at 800-333-3004, extension 3560 or visit our website at

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