In an attempt to lower high interest rates, the Federal Housing Administration announced it will be decreasing the monthly insurance premiums homeowners pay on FHA mortgages.
The premiums will decrease 25 basis points, which is determined based on the value of one’s home. Currently, every homeowner with a FHA mortgage pays 0.85% premiums off the home’s worth, but this percentage will now drop down to 0.60%. This change is set to go into effect for those who purchase new FHA homes or refinance their mortgage on or after January 27, 2017.
For those with a standard, 30-year fixed rate mortgage of $200,000, this decrease will save about $500 a year. In total, the FHA predicts this reduction will target around one million buyers, and save current homeowners about half a billion dollars within 2017 alone.
The FHA sells insurance to those who conventionally wouldn’t get approved by traditional banks or credit unions. Since their rules only require a 3.5% down payment — compared to a standard 20% — more Millennials and first-time home buyers are able to manage the finances that come with owning a home. Plus, FHA also allows mortgages to be available to those with credit scores under 580.
This is the second time the FHA has reduced costs on their insurance plans, and the Department of Housing and Urban Development Secretary Julian Castro explains that these cuts have only been made available because their Mutual Mortgage Insurance Fund recovered from the housing crash in the late 2000s.
For first-time homeowners, this price cut is great news. Any amount of money they can save now is helpful, considering they will have to save up to spend on home repairs in the future. ON average, a homeowner can expect to spend between 1-4% of a home’s value annually on maintenance and repairs.
“It’s time the FHA passed along some modest savings to working families,” Castro explains to Bloomberg.