Insurance rates for FHA mortgages are going up, effective Monday.

As of April 9, 2012, the upfront insurance premium charged on FHA-insured mortgages for home purchases will increase to 1.75 percent, up from 1 percent currently. In addition, annual FHA mortgage insurance premiums will rise by one-tenth of a percentage point.

The increases are designed to bolster the FHA's reserves, which have fallen below the minimum established by law as a result of the housing crash. It will be the fourth FHA fee increase in the last three years and is expected to bolster the fund by more than $1 billion through 2013, according to the Department of Housing and Urban Development (HUD).

The fee increases will raise the cost of a $200,000 FHA mortgage by about $24 a month, assuming the borrower includes the upfront charge in the amount financed through a 30-year mortgage.

Streamline refinance exempted; fees going down

Certain borrowers who refinance current FHA mortgages are getting a break, though. The upfront fee for on an FHA Streamline Refinance is staying at 1 percent for now, and will drop to 0.01 percent as of June 11 for borrowers who obtained their current mortgage before May 31, 2009. The annual insurance fee on such refinances will remain at 0.55 percent.

A streamline refinance is a more or less automatic refinance for borrowers who currently have FHA mortgages. The main criteria is that they must be current on their mortgage payments and realize a tangible benefit from refinancing - such as a lower interest rate.

Fee increase on jumbo loans pending

Other fee changes are coming as well. The annual insurance fees on jumbo mortgages above $625,500 will increase by another quarter of a percentage point as of June 11, in addition to the upfront charge of 1.75 percent.

The annual insurance fee varies depending on the length of the loan and the size of the down payment. For 30-year mortgages with less than 5 percent down the annual fee will increase to 1.25 percent; for larger down payments, the rate will be 1.20 percent.

Some 15-year loans exempt

On 15-year fixed-rate mortgages, the annual fee will be 0.60 percent for loans with less than 10 percent down, and 0.35 percent for loans with down payments of 10 percent to 22 percent. The additional 0.25 percent increase for jumbo mortgages will be added June 11.

The annual insurance fees are waived on 15-year FHA mortgages with loan-to-value ratios below 78 percent, equal to a down payment of great than 22 percent.

The FHA will continue to allow down payments of as little as 3.5 percent for most borrowers.

Published on April 5, 2012