Lower mortgage insurance means you have to refinance

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By Christina O'Haver By Christina O'Haver

PHOENIX -- President Barack Obama threw out some letters and numbers in a speech in Phoenix Thursday: FHA and $900 savings every year. So, who qualifies and when does it take effect?

Thousands of people use FHA-backed loans to buy homes because they don't have much for a down payment or their credit ratings aren't great.

“One of the biggest advantages, particularly in our market, is a lot of people have to,” said Bill Rabold at Waterstone Mortgage. “Anybody that had a short sale, foreclosure, bankruptcy in the last few years, FHA is a lot more forgiving on the time frame.”

Obama is lowering the rate on the mortgage insurance required with those loans, also known as PMI.  Mortgage insurance covers the bank in case a buyer defaults, and the rate has been high since so many people lost their homes during the Great Recession.

With the lower rate, a family will save around $900 a year on a $200,000 loan.

“A lot of people pay these fees,” the president said Thursday. “If they're saving $900, that's money that's going to be going throughout the economy.”

Rabold said if you have an existing FHA loan, you will have to refinance if you want the lower rate on the insurance. But refinancing usually costs money.

“That's really why we offer the no-cost refinance,” Rabold said. “If you’re going to pay $2,500 and it saves you $100 a month, you've got to be there 25 months just to break even. But if you can save $80 a month for nothing, why not take advantage of that?”

The president hopes to entice new home buyers into the market, and Rabold expects the lower insurance rates will do that. But buyers should understand that they can avoid the mortgage insurance costs entirely if they can afford to put more money down. That can save a person thousands over the life of the loan.

“For somebody who says, 'I'm buying this house, I'm not going anywhere, I'm going to be here 10 years from now, 20 years from now,' and they have the good credit and everything to do the conventional, the conventional may be a much better option," Rabold said.

Home loans depend a lot on your specific situation. The lower insurance on FHA home loans will be available starting Jan. 26.