ARMs that have 5 years or
more of level payments are considered FRMs. ARMs 1 are those with rate
adjustment caps of 1% or less. All other ARMs are ARMs2. ARMs2 that
allow negative amortization may have higher premiums.
The premiums are for coverage
required by Fannie Mae and Freddie Mac. No refunds are available. The
premium rates are applied to the original loan balance, and hold for 10
years, after which they fall uniformly to .20% of the original loan
balance unless they were already less than .20%, in which case they
remain unchanged.
Premiums are annual rates paid
monthly. To obtain the monthly premium in dollars, multiply the figure
shown in the table by the loan balance and divide by 1200. If the
premium rate is .92 and the loan is for $100,000, for example, the
monthly premium is $92000 divided by 1200, or $76.67.
Under Federal law, premiums are
automatically terminated when the loan balance falls to 78% of the
original property value, and may be terminated earlier at the borrower's
initiative when the balance reaches 80% of appreciated value.
Notes: In recent years,
insurers have been pricing loans they would have rejected earlier, with the
result that premiums cover a much wider range. They are
higher on investment and vacation properties, manufactured houses, and
cash-out refinances. In addition, with down payments of less than
3%, premiums may vary with credit score.
