One Year In: U.S. Department of Housing and Urban Development Annual Mortgage Insurance Premium Cut Saves Borrowers $600 Million
March 20, 2024 / Source: HUD
WASHINGTON – The U.S. Department of Housing and Urban Development (HUD) today marks the one-year anniversary of its implementation of a 35 percent cut in the price of the Annual Mortgage Insurance Premium (MIP) paid by borrowers with Federal Housing Administration-insured mortgages. The reduction became effective on March 20, 2023, for all borrowers using FHA-insured mortgage financing to purchase or refinance a home. FHA’s MIP reduction remains a cornerstone of the Biden-Harris Administration’s efforts to make homeownership more accessible and affordable for the nation’s working families, particularly households of color whom FHA serves at rates that far exceed other mortgage market participants.
FHA’s programs provide crucial onramps to the stability and wealth building potential made possible by owning a home. In the one year since its implementation, the premium reduction has helped more than 682,000 borrowers save an average of $876 annually, saving them nearly $600 million collectively in just the first year of their mortgages.
“One year ago today, we cut mortgage insurance premiums and helped thousands of homeowners save more of their hard-earned money,” said HUD Secretary Marcia L. Fudge. “This has been one of the crowning achievements of my tenure. I’m proud to reflect on the ways this historic action has already made a real difference in the lives of FHA borrowers, including many first-time homebuyers and households of color.”
“At a time when homebuying has become more expensive and feels out of reach for many, the MIP cut puts money back into the pockets of American homebuyers and helps more well-qualified borrowers achieve the benefits of homeownership,” said Federal Housing Commissioner Julia Gordon. “Our ability to make such a significant premium reduction was based on a solidly performing Mutual Mortgage Insurance Fund in fiscal year 2022 and prudent risk assessment of our portfolio.”
About FHA’s Annual MIP
FHA mortgage insurance facilitates broader availability of mortgage financing for low-and moderate-income households by reimbursing lenders for losses when a loan defaults. The mortgage insurance premium revenues received by FHA offset mortgage insurance claims it pays to lenders, enabling the program to operate without government subsidy.
FHA’s annual MIP is calculated as a percentage of the outstanding loan balance. For example, an outstanding loan balance of $200,000 with a 0.55% annual MIP (the standard pricing for most FHA-insured mortgages), would yield an annual MIP amount of $1,100. Lenders typically assess the annual MIP via 12 equal payments included in a borrower’s monthly mortgage payment.
The MIP constitutes a portion of the costs considered in determining a household’s eligibility for mortgage credit. A lower MIP allows more homebuyers to qualify for FHA-insured mortgages, expanding homeownership opportunities for qualified borrowers.
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