FHA Mortgage Insurance Premium (MIP): Costs, Rules, and How to Remove It

For most borrowers with an FHA loan, the Mortgage Insurance Premium (MIP) is a mandatory cost that includes an upfront fee of 1.75% of the loan amount and an annual premium, typically 0.55%, paid monthly. Crucially, for loans originated after June 3, 2013, MIP generally lasts for the entire loan term unless you make a down payment of 10% or more, which allows for cancellation after 11 years. The only other way to remove MIP is to refinance into a conventional loan.

What Is FHA Mortgage Insurance (MIP)?

A Mortgage Insurance Premium (MIP) is a type of insurance required by the Federal Housing Administration (FHA) on all its loans. This insurance protects the lender—not the borrower—in case of loan default. The trade-off for this cost is that FHA loans offer more accessible qualification criteria, such as lower minimum credit scores and down payments as low as 3.5%, making homeownership possible for buyers who might not qualify for a conventional mortgage.

How Is MIP Different from PMI?

Both MIP and Private Mortgage Insurance (PMI) serve a similar purpose but apply to different loan types and have distinct rules. PMI is required on conventional loans when the down payment is less than 20%. A key difference is that PMI can typically be canceled once the homeowner reaches 20% equity in the property. MIP, however, is required on all FHA loans regardless of the down payment size and, for most modern loans, is permanent.

The table below outlines the core differences:

How Much Does FHA MIP Cost?

The cost of FHA MIP is divided into two parts:

1. Upfront MIP: This is a one-time fee equal to 1.75% of the base loan amount. It is due at closing but can often be financed into the total loan instead of being paid out-of-pocket.
2. Annual MIP: This is a recurring annual premium, which is divided into 12 monthly payments. The rate varies based on the loan term, the loan amount, and the loan-to-value ratio (LTV), which is the mortgage amount divided by the home's value.

For a typical borrower with a 30-year loan of $300,000 and an LTV over 90%, the costs would be:

• Upfront MIP: $5,250 (can be financed)
• Annual MIP: $1,650 per year, or $137.50 added to each monthly payment.

Based on current FHA guidelines (2023), annual MIP rates for most common scenarios are:

How Can You Remove FHA Mortgage Insurance?

Removing MIP is not as straightforward as removing PMI. For the vast majority of FHA borrowers, the monthly premium is required for the entire life of the loan. However, there are two primary exceptions:

• 11-Year Rule: If your original down payment was 10% or more, you can request to cancel the monthly MIP after 11 years of on-time payments.
• Refinancing: The most common method to eliminate MIP is to refinance your FHA loan into a conventional mortgage. Once you have built at least 20% equity in your home, you may qualify for a conventional loan that does not require any mortgage insurance.

Before pursuing refinancing, it's essential to assess your current equity, credit score, and prevailing interest rates to ensure it is a financially sound decision.