FHA Mortgage: 30 Year Versus A 15 Year Fixed

I have mentioned my thoughts on carrying a big, long mortgage for years now and I still stand by that however with an FHA loan it can be a little different due to the costs of the monthly mortgage insurance on a 30 year fixed versus a 15 year fixed.

On a 30 year fixed, if you put less than 5% down the monthly mortgage insurance factor is 1.15% and if you put 5% or more down it’s 1.10%.

On a 15 year fixed, if you put less 10% down the monthly mortgage insurance factor is .5%,  if you 10 – 21.99% down it’s .25%, and if you put 22% or more down there isn’t any.

Here is an example: On a $10ok purchase price, with 3.5% down on a 30 year fixed, the monthly mortgage insurance is $91.67 per month but on a 15 year fixed it’s $39.30 per month.  The interest rate is normally about .5% lower on a 15 year fixed.  If market rate is 3.5% on a 15 year that would make your Principle & Interest payment at $696.76 per month plus the $39.30 per month of MI for a total payment of $736.06 per month.  On a 30 year fixed at 4% the Principle & Interest payment would be $437.66 per month plus the $97.67 per month of MI for a total monthly payment of $529.33.

Both the 30 year and 15 year fixed require the one time Upfront Mortgage Insurance Premium (UFMIP) of 1% of the loan amount.  You have to keep the monthly mortgage insurance on until you have 22% equity AND a minimum of 5 years other than if you have a 15 year fixed putting 22% or more down then you have no monthly mortgage insurance from the start.

Every borrower’s circumstances are different so make sure to consult a Mortgage Consultant and/or Financial Planner.  I use Mortgage Coaching software to help my clients determine the best loan for them.