Confusion about FHA mortgage insurance drop off

[Mike_B03]

I've always thougths that FHA mortgage insurance drops off after you have 78% LTV and pay a minimum of 5 years, and I took that to mean that you could double up on the payments or make a large principle payment to reach 78% LTV...but I noticed on the loan paperworks that it says "Term of Monthly Premium: 105 months".

Looked a little bit online and I saw conflicting information but some said that the 78% has to be reached through regularly monthly payments, not through extra principle payments. So in reality, it's not 60 months of PMI, but 105 months (almost 9 years!).

[tooleman694]

Mine says 5 years and 78 percent.. But with the amount I put down I wont actually hit 78 percent for 7 years if I pay my regular scheduled payments.

I would have to make a few extra to hit the 5 year mark. Or just Refi into conventional in a few months.

[getmycreditright]

Yes, you are correct. If you put down 3.5%, it will take you 9 years to reach 78% LTV and get PMI removed. You have to pay it for at least five years, but to have it removed in five years, you will defiinitely have to make extra payments.

Hopefully, I won't have to deal with this because if rates remain stable, I will look to refi in a year or so.

[Mike_B03]

Thats the thing though, I read that even if you make extra payments, it will not drop off...it has to go by the original amortization schedule. That's where the confusion is.

So say it's originally scheduled to drop off after 8 years based on the amortization schedule but you put a large chunk toward the principle after 5 years into the loan and instantly have 78% LTV. I thought at that point the PMI would fall off, but aparently you have to pay whatever length was stated based on the original amortization schedule...basically the FHA does not want to get cheated out of those extra payments.

[Mike_B03]

Here is a link that talks about it: http://www.in.gov/dfi/2587.htm

Borrower-initiated Cancellation

When a mortgage that is subject to PMI reaches an 80% loan-to-value ratio (LTV) based upon the initial amortization schedule or pre-payments, the borrower may make a written request that PMI be canceled.

Automatic Termination

When a mortgage that is subject to PMI reaches a 78% (LTV) as a result of the initial amortization schedule, the PMI must be automatically terminated provided that the borrower is current on payments. If the borrower is not current, the PMI must be automatically terminatedwhen the borrower becomes current; cancellation will take place the first day of the following month. With a 30 year mortgage, it will take eight or ten years on average to reach the point where you can cancel the insurance.

[getmycreditright]

Well that's bull****. I guess we'll be getting refi'd in 12 -18 months then. No way I'm paying PMI for nine years man.

EDIT: There we go!

[Mike_B03]

Ok so I got it straightened out, called the FHA Resource Center and asked them directly. They specifically said that you can make additional prinicple payments toward the loan to reach 78% LTV sooner but do still have to pay at least 60 months. 

[tooleman694]

That is great news.

[prince1969]

There have been some recent changes in the laws regarding mortgage interest premiums. There is a closed thread at the top about it. The first change was on April 1, 2013. On a 30 year FHA, you have to pay MIP for at least 5 years. Then in June, it will be for the life of the loan. I did a 15 year FHA loan to avoid the MIP but you still have to pay an upfront mortgage interest payment but it is a one time charge. Not sure about the 20 or 25 year FHA loans, don't think my lender had them anyway but I never asked about them.