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The Added Value to Your Mortgage Loan: The FHA MIP Charge

The FHA House Financing

The FHA MIP or the Federal Housing Administration Mortgage Insurance Premium has been a popular term now to house buyers. FHA mortgage loans are now well-known to potential house buyers who are looking for a cheap down payment term. FHA loans offer a minimum of 5% down payment and a $200,000 purchase price. Interest rates are also fixed at 3.75% just like conventional mortgage loans on a 30-year term. However, although FHA mortgage loans offer relatively very low down payment terms, the mortgage loan’s cost in the long run can still be blown up because of the Mortgage Insurance Premium they are charging their customers. These charges do not appear at the start of your mortgage term but at its closing.

What Is FHA MIP?

The Federal Housing Administration Mortgage Insurance Premium or FHA MIP is the value added to your total loan size. This is the downside part of the FHA mortgage loan. Although they offer low down payment requirements, an added charge is put into the loan that will soon be an added burden to the consumers and potential house buyers. Your upcoming purchases backed up by FHA will be given an added charge so you might want to know how much will you pay for this. The MIP is paid in two different terms.

How Much Will You Pay for MIP?

The FHA MIP has two kinds. The upfront MIP and the annual MIP. The upfront MIP is a one-time charge at the closing of your mortgage loan. It is computed at 1.75% of your total loan size. The collection of this upfront MIP goes to the FHA’s Mutual Mortgage Insurance fund and is only paid once. On the other hand, annual MIP is paid on a yearly-basis. The percentage of the MIP rate varies depending on your loan size and term (15 or 30-year terms). These forms of MIP are both charged to the consumer of the mortgage loan.

Cancelling Your MIP 

Annual MIP can be cancelled after completing a certain amount of paid monthly dues. For 30-year loan terms, the Annual MIP charge can be waived after 60 months and the loan reaches a 78% loan-to-value. For loans with a 15-year term, there is no required 60 months of paying for the Annual MIP to be cancelled as long as the loan has reached 78% loan-to-value. That’s how your FHA MIP works.

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