Government-backed mortgages to get cheaper - WKOW 27: Madison, WI Breaking News, Weather and Sports

Government-backed mortgages to get cheaper

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(CNN) -- It's a gift from the outgoing Obama Administration to would-be homeowners -- the annual mortgage insurance premiums borrowers pay - is going down.

This applies to home loans taken out and insured by the government. The quarter percentage point cut by the Federal Housing Administration (FHA) amounts to an average annual savings of $500 for homeowners.

The benefit is even bigger if a larger loan is taken out.   

The Housing and Urban Development secretary says there are sufficient reserves to meet future claims, so it's passing on some savings to families. The FHA backs loans to protect lenders if a borrower defaults - the catch is that insurance premiums are required.

Officials hope lower premiums push first-time home buyers to jump into the market.  

The new rate goes into effect on home sales closed, starting on January 27.

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