FHA Mortgage Insurance (MIP):
The Complete Breakdown

What FHA Mortgage Insurance Is and Why It Exists

FHA mortgage insurance premium — commonly called MIP — is the fee borrowers pay to fund the FHA insurance program. When you take out an FHA loan, the Federal Housing Administration does not lend you money directly. Instead, it insures your lender against losses if you default. MIP is the cost of that insurance, and every FHA borrower pays it regardless of down payment size or credit score.

This is fundamentally different from private mortgage insurance (PMI) on conventional loans. PMI is provided by private insurance companies, and its cost varies based on your credit score and down payment percentage. More importantly, PMI automatically cancels once your loan balance reaches 78% of the original appraised value. FHA MIP follows a different set of cancellation rules — and understanding those rules is essential for long-term financial planning.

Upfront MIP (UFMIP): 1.75% of the Loan Amount

Every FHA loan carries a one-time upfront mortgage insurance premium of 1.75% of the base loan amount. This charge is assessed at closing and is nearly always financed into the loan balance rather than paid as cash out of pocket. The result is a slightly higher loan amount — but no additional burden on your closing day funds.

Here is how it works in practice. On a $250,000 purchase with 3.5% down, your base loan amount is $241,250. The UFMIP of 1.75% adds $4,222 to the balance, bringing your total FHA loan to $245,472. Your monthly payment is calculated on this higher amount, which means UFMIP has a small but real effect on your principal and interest payment each month.

Annual MIP Rates by Loan Scenario

In addition to the one-time upfront charge, FHA loans carry an annual mortgage insurance premium that is divided into 12 monthly installments and included in your mortgage payment. The rate depends on your loan term, loan-to-value ratio (LTV), and loan amount. For the vast majority of FHA borrowers — those on 30-year terms with standard down payments — the annual rate is 0.55%.

Because the minimum FHA down payment of 3.5% results in a 96.5% LTV, most 30-year FHA borrowers fall into the 0.55% tier. Borrowers who put 10% or more down achieve a 90% LTV and benefit from the lower 0.50% rate.

Monthly MIP Cost by Loan Size

Annual MIP is expressed as a percentage but paid monthly. To find your monthly cost, multiply your loan balance by the annual rate and divide by 12. The table below shows approximate monthly MIP amounts for common loan sizes at the standard 0.55% rate.

These figures are based on the initial loan balance. As your balance decreases through regular payments, your annual MIP recalculation reflects the lower amount — though the change per month is small in the early years of a 30-year loan.

When Does FHA MIP Go Away?

This is the question every FHA borrower eventually asks — and the answer depends entirely on how much you put down at closing. FHA's cancellation rules are straightforward but often misunderstood.

The FHA-to-Conventional Refinance Strategy

The most common way to eliminate FHA mortgage insurance is to refinance into a conventional loan once you have built sufficient equity. When your home's value has appreciated — or you've paid down the balance — enough to reach 20% equity, a conventional refinance eliminates the need for any mortgage insurance entirely.

The math behind this decision involves weighing your current MIP cost against the expenses of refinancing. Typical refinance closing costs run 2%–3% of the new loan amount. To determine your break-even point, divide your total refinance costs by the monthly MIP savings. For example, if refinancing costs $5,000 and eliminating MIP saves you $115 per month, you break even in approximately 43 months. If you plan to stay in the home beyond that point, the refinance makes financial sense.

Lowering MIP Through Streamline Refinance

If you already hold an FHA loan — particularly one originated before June 2013 — the FHA Streamline Refinance can be a powerful tool for reducing your mortgage insurance burden. FHA loans issued before June 3, 2013 carried annual MIP rates as high as 1.35%. Refinancing into a current FHA loan drops that rate to 0.55%, saving hundreds of dollars per month on larger balances.

The Streamline Refinance requires no appraisal and no income verification (for the non-credit-qualifying version), making it one of the fastest refinance options available. The key requirement is a net tangible benefit — your combined interest rate plus MIP rate must decrease. Even if interest rates have risen, the MIP reduction alone may satisfy this test for borrowers on older, higher-MIP loans.

For borrowers whose equity is too low to qualify for a conventional refinance, the Streamline is the best available tool for reducing monthly costs while staying within the FHA program. Review the full FHA requirements to understand what qualifies.

FHA MIP FAQ

Answers to the most common questions about FHA mortgage insurance premiums.