Mortgage insurance premium, or MIP, is a requirement for any FHA loan, including the FHA Streamline. This money the FHA collects on the premiums helps them build up their reserves in order to guarantee the loans that they approve. The FHA does not fund their loans; instead, they guarantee them with the banks that fund them. This means that the bank provides the funds, but the FHA offers an insurance policy for the lender should you default on your loan. The MIP is what funds that guarantee. Borrowers pay MIP for the entirety of an FHA loan, but it has different terms for the FHA Streamline loan.
The Loan Origination Date
The first factor that plays a role in your MIP for an FHA Streamline refinance is the origination date of your original FHA loan. If you obtained your loan before June 1, 2009, you have different MIP rates than someone that obtained their loan after that date. Because the rates were higher before June 1, 2009, borrowers are able to obtain lower MIP rates, both upfront and on an annual basis. The rates are as follows:
- Upfront mortgage insurance premium is .01 percent of the loan amount
- Annual mortgage insurance premium is .55 percent of the loan amount
These rates apply to any size, term, and loan-to-value ratio for loans originated before June 1, 2009.
If your loan originated after June 1, 2009, you will pay the current FHA MIP insurance rates, which are slightly higher. The rates are as follows and pertain to loans with a 30-year term, LTV greater than 95%, and loan amount less than $625,000:
- Upfront mortgage insurance premium is 1.75% of the loan amount
- Annual mortgage insurance premium is .85 percent of the loan amount
These rates apply to 30-year term loans which the borrower put down 5 percent or less on the home and the loan amount is less than $625,000. If your LTV is less than 95%; the term is 30 years; and your loan amount is less than $625,000, the MIP rates for the FHA Streamline loan will be different and are as follows:
- Upfront mortgage insurance premium 1.75 percent of the loan amount
- Annual mortgage insurance premium is .80 percent of the loan amount
If you have a loan amount greater than $625,000; a 30-year term; and an LTV greater than 95%, your rates are as follows:
- Upfront mortgage insurance premium is 1.75 percent of the loan amount
- Annual mortgage insurance premium is 1.05 percent of the loan amount
If you have a loan amount greater than $625,000; a 300year term; and an LTV less than 95 percent, your rates are as follows:
- Upfront mortgage insurance premium is 1.75 percent of the loan amount
- Annual mortgage insurance premium is 1.0 percent of the loan amount
If you have a loan with a 15-year term, a loan amount higher than $625,000 and a LTV higher than 90%, your rates are as follows:
- Upfront mortgage insurance premium is 1.75 percent of the loan amount
- Annual mortgage insurance premium is 0.95 percent of the loan amount
If you have a 15-year term, a loan amount higher than $625,000 and a LTV between 78% and 90%, your rates are as follows:
- Upfront mortgage insurance premium is 1.75 percent of the loan amount
- Annual mortgage insurance premium is .70 percent of the loan amount
If you have a 15-year term, a loan amount higher than $625,000 and an LTV lower than 78%, your rates are as follows:
- Upfront mortgage insurance premium is 1.75 percent of the loan amount
- Annual mortgage insurance premiums is .45 percent of the loan amount
Upfront Mortgage Insurance Refund
There is one more exception to the rule pertaining to MIP for FHA Streamline loans. The FHA offers a refund to borrowers that are refinancing their original FHA loan into an FHA Streamline within the first 3 years of owning the mortgage. The refund offered is a proration based on how long you owned the mortgage. As a stipulation for every homeowner, you are not eligible to refinance your original FHA loan until you hold the mortgage for at least 6 months or 210 days. After that point in time, you can refinance into a lower rate as well as receive an MIP refund. The largest refund you are eligible to receive is 70% if you refinance on the 6th month of owning the first FHA mortgage. From that point, the refunds decrease by 2 percent every month. See the below rates for examples:
- Refinance on the 7th month and you receive 68% of your original upfront MIP back towards your new loan
- Refinance on the 8th month and you receive 66% of your original upfront MIP back towards your new loan
- Refinance on the 12th month and you receive 58% of your original upfront MIP back towards your new loan
As you move further and further away from the origination of the first FHA loan, the amount decreases, with the final refund ending at the 36th month, or 3 years after your loan origination. At that point you are eligible to receive 10% of your upfront MIP back in a refund.
The money refunded back to you is used towards the amount of the new upfront MIP for the FHA Streamline loan. This helps to decrease the amount of money you have to pay out of pocket in order to lower your interest rate and have a more affordable monthly payment. This refund pertains only to the upfront mortgage insurance premium you paid – it does not apply to the annual mortgage insurance premium paid throughout the life of the loan.
The final difference in MIP for the FHA Streamline refinance pertains to the cancellation of the mortgage insurance premium. In general, FHA MIP gets paid over the life of the loan, there is no cancellation. The exception to the rule, however, occurs when you have an LTV less than 90% at the time of refinance. Calculation of this figure occurs based on the original appraisal, unless you pay for a new appraisal (which is not required for the FHA streamline program). If your LTV is higher than 90% at the time of refinance, you will pay MIP for the life of the loan. If the value of your home is higher now compared to when you originally obtained the loan, it may be worth paying for a new appraisal to keep your monthly costs down.