Q. I have been offered an FHA refinance package. My present loan is $224,529. The appraisal will be approximately $280,000. The loan officer tells me, because of the federal program, they will deduct at least 15% off my payoff to refinance under FHA, so I would be financing about $190,000. The lender/broker will pay all closing costs. He tells me I will need mortgage insurance, which I am questioning. The loan application lists a PMI, MIP funding fee of $3,929.28, meaning mortgage insurance. Why do I have to pay this insurance if my refinance is less than 78% of the appraised value?

A. FHA loans require all borrowers to buy mortgage insurance, no matter how much equity they have or the size of their down payment. That's the price homeowners pay for having the government guarantee the repayment of their loan.

Every borrower is charged an up-front premium at closing -- in most cases, 1.75% of the loan amount. Indeed, if you multiply the balance on your present loan, $224,529 times 0.0175, you get $3,929, or the amount you're being charged for mortgage insurance.

That doesn't sound like your lender is reducing the principal it's asking the FHA to guarantee by 15%. You should ask why you're not being charged insurance on the discounted balance of $190,000, or whatever it might be.