USDA to increase Annual Fee effective 10/01/14

The USDA has announced that there will be an upcoming increase to their Annual Fee.  This marks the second time they have increased the Annual Fee since the Annual Fee was first introduced in 2011. Currently the annual fee equals .40% of the mortgage balance.  Starting 10/01/14, the Annual Fee will increase to .50% of the mortgage balance.

USDA Mortgage Annual Fee

 The USDA Annual Fee is similar to mortgage insurance.  This fee is collected from all borrowers to help the USDA remain financially solvent and to offset potential foreclosure losses.

 Cost of the USDA Mortgage Annual Fee

 The annual fee is calculated against the principal balance of the mortgage each year and then this total is charged as a monthly amount.  This monthly amount is calculated against the balance annually, so the monthly amount will decrease for payments 13 through 24.  The annual fee would then be calculated against the balance after payment 12 and then after payment 24 and then after payment 36 and so on.  Gradually this monthly amount decreases with time as the principal balance of the account decreases. 

Example: a USDA Mortgage with an initial balance of $153,000 would have an initial payment towards the annual fee of $63.28 per month ((153,000 x .05) / 12) .  At the end of each calendar year, this annual fee would be recalculated based on the principal balance.

Keith Landis