The Federal Housing Administration on Friday spelled out details of its plan to lower mortgage-insurance premiums, a day after President Barack Obama unveiled the effort to jump-start first-time home purchases.
For 30-year mortgages with less than a 5 percent down payment, the mandatory annual mortgage-insurance rate of 1.35 percent of the loan balance will be cut to 0.85 percent. For FHA-insured loans with more than a 5 percent down payment, the previous 1.30 percent rate will be reduced to 0.80 percent.
But the reduced rates will not apply to borrowers with 15-year mortgages, according to a letter issued to mortgage lenders by the federal government. The insurance rates on that loan product, which range from 0.45 percent to 0.95 percent of the loan balance, remain the same.
The lower insurance rates on 30-year mortgages will take effect Jan. 26. The agency said it will temporarily allow FHA purchase loan and refinancing applications now in process and that have a case number but have not closed to be canceled. Then, borrowers can restart the process and get new case numbers assigned on or after Jan. 26.
Borrowers are encouraged to contact their lenders and explore their options, the FHA said.