Is Mortgage Insurance Refundable?
If you took out an FHA mortgage within the last three years and plan to refinance, you could get a refund on the unused portion of FHA’s Upfront Mortgage Insurance Premium (UFMIP).
Your FHA loan, which was issued by a private lender, was insured by the Federal Housing Administration, which means you paid and upfront insurance fee to them at closing. You may have paid cash or rolled the UFMIP into your loan. Either way, FHA can return some of that money to you.
FHA mortgage insurance premiums change from time to time. You paid both an upfront rate and set your annual, ongoing mortgage insurance rate (the one you see in your monthly mortgage payment) at closing.
Here’s the history of the upfront and annual premiums.
FHA MIP CHART
|Date||FHA Annual MIP||FHA Upfront MIP|
|Before January 2008||0.50%||1.50%|
So, let’s take a look at the size of the refund you may recover and how the annual Mortgage Insurance Premium (MIP) is reset when your loan is refinanced (if still required).
FHA UFMIP Refunds
The size of the UFMIP refund depends on the number of months since your original FHA loan closed. You can find the pro-rated refund percentage by cross referencing the months since closing in the chart below:
FHA REFUND CHART
|Months After Closing||MIP Refund||Months After Closing||MIP Refund||Months After Closing||MIP Refund|
For example, Linda took out a $200,000 FHA loan two years ago. She paid a 1.75% UFMIP, or $3,500. Twenty-four months have passed since the closing. Using the chart above, her refund would be 34%, or $1,190.
In the case of Linda’s refinance, the proceeds from the refund are applied to her new mortgage, at closing.
Re-setting the Annual Mortgage Insurance Premium (MIP)
When you refinance, and your loan still carries a loan-to-value (LTV) more than 80, you’ll still be required to carry the annual mortgage insurance premium. However, this can also work to your advantage.
- You’ll pay the current annual MIP rate, which may be lower now than when your original loan closed (see annual premium history above).
- Plus, annual premiums scale down a little bit, based on the LTV. In other words, a loan with an LTV higher than 95 carries a slightly higher annual rate than loans at 90 or 85 LTV. So, if your LTV is lower now, you may pay a slightly lower percentage.
Let’s look at Linda’s situation again. Her original annual premium (MIP) was set at 1.35%. Since then, FHA insurance premiums fell to 0.85%. Using the same $200,000 loan amount for our calculation, her old annual premium was $2,700 and her new premium will be $1,700. Thus, Linda will save $1,000 per year (or $83.33/month) when she refinances.
FHA UFMIP Refund Eligibility
There are a few “rules” to determine whether a refund is possible. A few of them are so full of mortgage industry jargon that they won’t be listed here. At a high level, and in plain-English, here are the guidelines you’ll want to know:
- Your current FHA loan must be refinanced into a new FHA loan. Refinancing into a conventional or VA loan isn’t allowed. Typically, you’ll take advantage of the FHA Streamline program, which is “FHA to FHA,” as required. The streamline refinance is faster because it requires less documentation. A new appraisal may not even be required.
- The refund won’t be delivered to you in cash; it’s typically applied to the UFMIP on the new FHA loan.
- If your FHA loan is assumed by another party (someone buys your home and assumes your original FHA mortgage), you will not get a refund.
- If a lender submits a claim for insurance (you’ve defaulted and the lender is trying to recoup the insured value), you will not get a mortgage insurance refund.
What About Older FHA Loans?
So far, I’ve included information about FHA refunds for loans closed since 1983. However, FHA loan refunds extend decades back. The rules change from time-to-time. So, if you had an FHA loan a long time ago, you still might be eligible for a refund. Here’s a timeline of those policies:
Under the distributive share guidelines, you may be eligible from HUD’s Mutual Mortgage Insurance Fund (the FHA insurance pool) if you:
- Closed your loan before September 1, 1983,
- made mortgage payments for more than seven years, and
- had your FHA insurance terminated before November 5, 1990.
There are a few more time windows to check where the FHA insurance refund rules slightly differ.
For any FHA-insured loans with a closing date prior to January 1, 2001, and endorsed before December 8, 2004, no refund is due the homeowner after the end of the seventh year of insurance.
For any FHA-insured loans closed on or after January 1, 2001 and endorsed before December 8, 2004, no refund is due the homeowner after the fifth year of insurance.
For FHA-insured loans endorsed on or after December 8, 2004, no refund is due the homeowner unless they refinanced to a new FHA-insured loan, and no refund is due these homeowners after the third year of insurance.
If you feel you may be entitled to a “distributed share” refund, you can call HUD on their toll-free number (800) 697-6967 or check their refund database.
How are Distributed Share Refunds Issued?
If you’re eligible for a refund, your lender notifies the U.S. Department of Housing and Urban Development (HUD), terminating the insurance on the original loan. Then HUD requests a check from the Treasury Department. The Treasury may ask you for more information or simply cut the check. You should get a check (or a request for additional information) within 45 days after your original FHA loan is paid off (which is what happens when you refinance; the old loan is paid off and replaced by the new one).