How do I cancel FHA mortgage insurance?
Despite what you’ve heard, FHA mortgage insurance premium (MIP) is not permanent.
Some homeowners can simply let their mortgage insurance fall off; others need to refinance out of it.
With mortgage rates near historic lows, and home values rising, many are choosing to refinance.
Getting rid of FHA MIP is a big deal. You can check your eligibility for a new, PMI–free mortgage via a refinance.
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Removing FHA MIP: Key takeaways
To eliminate the annual mortgage insurance premium (MIP) on an FHA loan, you can either:
- Wait for MIP to expire – If you put down at least 10% when you bought the home, your FHA MIP expires after 11 years
- Refinance into a conventional loan – Replacing your FHA loan with a conventional loan eliminates the FHA’s MIP requirement. This is the only FHA MIP removal option if you put less than 10% down
The good news is that home values are rising nationwide. So many FHA homeowners have enough equity to refinance into a conventional loan and cancel mortgage insurance – even if they only bought a few years ago.
You can check your FHA removal eligibility with a lender.
How long does FHA MIP last?
Most current FHA loans fall into two categories: those with case numbers issued before June 3, 2013, and applications made on or after that date.
Your FHA MIP removal will depend on this deadline because that’s when FHA rules changed.
FHA loans for which you completed an application on or after June 3, 2013:
Modern FHA loans have simplified their MIP schedule. The size of your down payment determines whether MIP will expire.
|Loan Term||Original Down Payment||MIP Duration|
|All loan terms||Less than 10%||Life of loan|
|All loan terms||More than 10%||11 years|
FHA loans for which you completed an application before June 3, 2013:
These older FHA loans use a more elaborate MIP schedule.
|Loan Term||Original Down Payment||MIP Duration|
|20, 25, 30 years||Less than 10%||78% LTV after 5 years|
|20, 25, 30 years||10-22%||78% LTV after 5 years|
|20, 25, 30 years||More than 22%||5 years|
|15 years||Less than 10%||78% LTV|
|15 years||10-22%||78% LTV|
|15 years||More than 22%||No MIP|
How to remove FHA mortgage insurance premium
Paying FHA mortgage insurance doesn’t have to be permanent. You just need decent credit and enough equity to refinance into a conventional loan.
According to the National Association of Realtors, the median home price in the U.S. was $358,000 in December 2021. That was 15.8% higher than one year earlier.
This additional value means more homeowners are in a position to refinance out of FHA, and very soon.
Once homeowners reach 20% equity based on current value, they can refinance into a conventional loan – one that does not require any mortgage insurance whatsoever.
Automatic FHA mortgage insurance removal
If you received your FHA loan before June 3, 2013, you were eligible for MIP cancelation after five years.
But you must have 22% equity in the property, and you must have made all payments on time.
For homeowners with FHA loans issued on or after June 3, 2013, you must refinance into a conventional loan and have a current loan–to–value ratio of 80% or lower.
Loan–to–value ratio (LTV) is another way to measure your home equity.
If you owed $160,000 on your home that’s valued at $200,000, your LTV would be 80% because the loan balance ($160,000) is 80% of the home’s value ($200,000).
An LTV of 80% means you have 20% home equity which should be enough to refinance into a conventional loan with no PMI.
Refinance to remove FHA MIP
Most FHA homeowners today have a loan with the following characteristics:
- Opened on or after June 3, 2013
- Less than 10% original down payment
- 30–year loan
These FHA mortgage loans are not eligible for automatic mortgage insurance cancellation.
To stop paying mortgage insurance premiums you’d need to refinance out of your FHA loan.
The good news is that there are no restrictions on refinancing out of FHA into a conventional loan with no PMI. Plus, there are never any prepayment penalties on FHA loans, so you can refinance any time you want.
You will need about 20% home equity to do so. To find your home equity, subtract your current mortgage balance from the value of your home.
You also need a credit score of at least 620 to refinance into a conventional loan with most lenders. The higher your credit score, the more you could save on your monthly mortgage payments.
How to do an MIP removal refinance
The refinancing process is straightforward. All you need to do is apply with a mortgage lender. Let your loan officer know you want to refinance into a conventional loan and cancel MIP.
From there, the lender will check your eligibility for a no–PMI conventional loan. This involves:
- A new home appraisal to check your current property value
- A full review of your credit score and credit history
- Verification of your income and employment
Provided you qualify for conventional financing, your lender will help you through the rest of the application and approval process.
Once your refinance closes, your existing FHA loan is replaced with the new conventional loan. And you no longer have to pay any mortgage insurance.
As a bonus, you might also get a lower interest rate via the refinance process, provided your personal finances are strong enough to qualify for a better rate.
Can you get rid of PMI on an FHA loan without refinancing?
It could be possible to eliminate your FHA mortgage insurance premium without refinancing. But only if you got your loan before 2013 or put at least 10% down when you bought the home.
- If you got an FHA loan between January 2001 and June 3, 2013: Your MIP will go away once you have 22% in home equity
- If you got an FHA loan after June 3, 2013: Your MIP will go away after 11 years of payments if you put at least 10% down. If you put less than 10% down, the coverage lasts until you pay off the loan
If your MIP won’t expire on its own, you will need to refinance out of your FHA loan to eliminate its MIP.
Even if your MIP will expire in a few years, a refinance could still save you thousands of dollars, especially if you can lower your interest rate in the process.
Lower your FHA mortgage insurance rate
Not everyone is eligible for a conventional refinance, and that’s ok. There may be a way to lower your FHA mortgage insurance cost even if you can’t remove it altogether.
You may have a higher rate of MIP than what is available today because these rates have decreased since 2015.
Here is a history of FHA MIP rates charged by the Federal Housing Administration:
- Prior to January 2008: 0.50% annual MIP
- October 2008: 0.55% annual MIP
- April 2010: 0.55% annual MIP
- October 2010: 0.90% annual MIP
- April 2011: 1.15% annual MIP
- April 2012: 1.25% annual MIP
- April 2013: 1.35% annual MIP
- January 2015: 0.85% annual MIP
If you received a loan in January 2013, for instance, you could refinance into today’s lower MIP and save $40 per month per $100,000 borrowed. Plus, you may save even more by getting a lower mortgage rate.
Keep in mind, though, that your new FHA loan’s MIP will become non–cancelable. That’s because your new loan will originate after June 2013, when FHA MIP rules changed.
Reduced upfront and monthly MIP for certain refinancing homeowners
If you got your FHA loan prior to May 31, 2009, you can receive lower MIP rates via an FHA Streamline Refinance. And your original upfront cost may be credited toward your new upfront cost.
Eligible candidates receive annual MIP of 0.55% (standard is 0.85%) and reduced upfront MIP of 0.01% (standard is 1.75%).
That’s a savings of $3,480 upfront and $50 per month on a $200,000 loan.
You’d need a perfect payment history for the past three months to qualify.
Conventional PMI vs. FHA mortgage insurance
The obvious advantage to conventional PMI is that it drops off automatically – no refinance is necessary for PMI cancellation. That’s not the case with FHA MIP.
Yet, many home buyers still choose FHA and its mortgage insurance because it can be more cost–effective, especially if they have a lower credit score.
The following chart shows FHA and conventional PMI payments assuming 3.5% down.
|Credit Score||FHA MIP Monthly Cost Per $100,000 Borrowed||Conv. PMI Monthly Cost Per $100,000 Borrowed||Monthly FHA Savings Per $100,000 Borrowed|
While FHA MIP is non–cancelable, it’s often the cheaper choice for home buyers.
Current FHA mortgage insurance rates
2022 FHA MIP rates are as follows for 20–, 25– and 30–year FHA loans.
|Original Loan Amount||Original Down Payment||Annual MIP|
FHA loans with terms of 15 years or less qualify for reduced MIP, as low as 0.45% annually.
In addition, there is the upfront mortgage insurance premium (UFMIP) required for FHA loans equal to 1.75% of the loan amount.
You may be entitled to a partial FHA MIP refund if refinancing into another FHA loan within three years.
How to remove conventional private mortgage insurance (PMI)
You have more options to cancel mortgage insurance if you have a conventional loan with private mortgage insurance (PMI).
You can simply wait for your PMI coverage to drop off. Because of the Homeowners Protection Act of 1989, lenders must cancel conventional PMI when you reach a 78% loan–to–value ratio.
Many home buyers opt for a conventional loan because PMI drops while FHA MIP does not go away on its own – unless you put down 10% or more.
Keep in mind most mortgage lenders base the 78% LTV on their last appraised value and not the original value at the time of purchase.
If your property value has gone up substantially, contact your current loan servicer and check its requirements to cancel early.
The servicer may require a new appraisal, or rely on its own internal valuation tools to determine your home’s up–to–date value.
You can also cancel conventional PMI with a refinance.
The appraisal for your refinance loan serves as proof of current value. If your loan amount is 80% or less of your current value, you do not incur new PMI costs.
FHA mortgage insurance FAQ
FHA MIP is the mortgage insurance program for FHA loans. It includes an upfront charge equal to 1.75 percent of the loan amount, as well as a monthly premium included in your mortgage payment. This insurance coverage protects FHA lenders, allowing them to offer competitive rates on FHA loans even when the borrower makes a small down payment and has only average credit.
PMI (private mortgage insurance) is required on conventional loans with less than 20 percent down. But the rules are different with FHA. All FHA loans require mortgage insurance premium (MIP), regardless of down payment size. So you will have to pay FHA mortgage insurance even. If you put down 20 percent or more.
Mortgage insurance (PMI) is removed from conventional mortgages once the loan reaches 78 percent loan–to–value ratio. But removing FHA mortgage insurance is a different story. Depending on your down payment, and when you first took out the loan, FHA MIP usually lasts 11 years or the life of the loan. MIP will not fall off automatically. To remove it, you’ll have to refinance into a conventional loan once you have enough equity.
If your FHA loan was originated before June 3, 2013, you might be eligible to get rid of mortgage insurance. Those older FHA loans are eligible for MIP elimination when the loan balance reaches 78 percent LTV or lower. If your FHA loan was originated on or after June 3, 2013, you are not eligible for FHA mortgage insurance cancellation. However, if you’ve built at least 20 percent equity in the home, you can get rid of MIP by refinancing into a conventional loan with no PMI. Veterans could also look into VA loan options.
Any lender that offers conventional loans by Fannie Mae and Freddie Mac can help you cancel your FHA MIP via a refinance. Any FHA–approved lender can help you reduce your payments via an FHA Streamline Refinance loan. Shop around for the best rates. While most lenders in the U.S. offer conventional and FHA loans, each one will offer different rates for them.
A cash–out refinance can provide funds for anything from paying off credit card debt to home improvements. Conventional cash–out loans allow you to take up to 80 percent of your home’s value. If that’s more than your existing balance, you get to keep the extra cash and avoid PMI. There is also an FHA cash–out refinance. It allows loans up to 80 percent of your home’s value. However, you will still pay FHA mortgage insurance. So it’s best to consider the conventional version first.
If you currently pay PMI or MIP mortgage insurance, you can get rid of it by refinancing once your home reaches 20 percent equity. If you’re shopping for a new home loan, look for options that allow no PMI even without 20 percent down. These include piggyback loans, lender–paid mortgage insurance, or a specialized mortgage program that doesn’t require PMI.
Almost all FHA borrowers pay the same mortgage insurance rates. That includes an upfront mortgage insurance premium (UFMIP) equal to 1.75 percent of the loan amount and an annual mortgage insurance premium (MIP) equal to 0.85 percent of the loan amount. Though it’s charged annually, this premium gets divided into 12 monthly mortgage insurance payments added to your mortgage payment. On a loan balance of $200,000, MIP would add $141.66 a month to your mortgage payment.
FHA mortgage insurance rates do not go down each year. But your premium payments do. That’s because mortgage insurance payments are calculated based on your loan amount. So as your loan balance goes down each year, the dollar amount you pay for mortgage insurance is reduced as well.
FHA can increase mortgage insurance at any time. But your existing MIP will not go up. As long as you stick with your original FHA loan (and don’t refinance into a new FHA mortgage), you’ll continue to pay your original mortgage insurance rate for as long as your MIP is due.
Having mortgage insurance is often worth it. That’s because FHA loans with MIP let you buy a home with a much smaller down payment than you could otherwise. And FHA loans are extra lenient about credit. So if you don’t qualify for a mortgage without MIP, it might be best to bite the bullet and pay mortgage insurance for a few years. You’ll start building equity sooner. And you could refinance into a conventional loan with no PMI once you have 20 percent equity.
How do I get started?
Contact a lender and get a rate quote. Mortgage quotes come with an eligibility check and potentially an estimate of current home value.
Get a quote and get started canceling your FHA MIP today.
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