First-time homebuyers in Santa Fe sometimes wonder why they may be required to pay an extra fee each month on top of their regular mortgage payment. Before you make a choice on a mortgage loan, make sure you understand the mortgage insurance premium, and how you can reduce it and put the money toward building up your equity.
Here’s a tip for potential FHA buyers of Santa Fe real estate: Paying extra principal on your mortgage loan can help you remove the required monthly mortgage interest premium (MIP) faster, which will lower your monthly loan payment, reduce your overall interest, and build equity faster on your home.
FHA loans require mortgage insurance premium to cover a possible loss to the lender if the property has to be foreclosed and sold. The premium is sizeable and does nothing to help build equity in your home. Eliminating the MIP would reduce the payment considerably, and help you keep more cash in your pocket.
FHA loans require that MIP remain in effect for five years. But after that time, the MIP requirement will be released if you have paid down your loan to at least 78% of the original purchase price. With that extra payment removed, your monthly payment will go down. Since amortization is affected by interest rates, the normal time to reach this 78% point could be from 9 to 12 years at today’s interest rates.
Contact your mortgage professional for more information about your particular situation.