How to Calculate an Upfront Mortgage Insurance Premium for a Refinance

The upfront mortgage insurance premium is a charge required for home refinancing using the FHA mortgage insurance program. FHA mortgage programs allow you to receive a refinance loan in an amount up to 96.5 percent of the home's value. The upfront mortgage insurance premium is required for both the FHA Streamline Refinance program and full credit qualifying refinances.

Things You'll Need

• Calculator

Instructions

1. Find the current balance of your existing mortgage. You can get the information from you latest monthly statement, by calling your lender or, if available, online.

2. Determine the size of mortgage loan that will be used in the refinance. If you are talking to a mortgage lender or broker, ask for the projected loan amount. If you have not yet discussed refinancing with a lender, use your current mortgage balance plus an estimate of the refinancing fees you want to include in the new mortgage amount. A 2009 survey by Bankrate.com reported average closing costs of $2,700, not including government taxes or escrow fees. Check with a mortgage lender or title company for costs in your area. A link is provided with the state-by-state closing cost averages as of 2009.

3. Multiply your proposed refinance mortgage amount by 2.25 percent. In decimal terms, 2.25 percent is 0.0225. As of April 2010 the upfront mortgage insurance premium rate for all FHA mortgages is 2.25 percent. For example, if your planned loan amount is $200,000, the estimated insurance premium would be $4,500.

Tips & Warnings

• The FHA upfront insurance premium can be added to the mortgage loan amount and financed.

• The upfront insurance premium can also be paid in cash at mortgage closing. The full mortgage premium must be either paid in cash or rolled into the new loan. It cannot be split between the two options.

• Closing costs can vary depending on the size of the loan and local taxes and fees. Consult with a mortgage lender in your area for a more precise estimate of closing costs.

• The actual amount of upfront mortgage premium cannot be calculated until the final amount of the refinance mortgage is determined. A mortgage lender will provide a good-faith estimate, but the actual number is determined with final mortgage paperwork.

References

• Bank Rate: Mortgage Closing Costs
• FHA: FHA Loan Policy Changes You Should Know About
• FHA: FAQ

Resources

• Bank Rate: 2009 State by State Closing Costs