How to cancel FHA mortgage insurance premium (MIP) or conventional PMI mortgage insurance
How do I cancel my FHA mortgage insurance premium (MIP)?
Despite what you’ve heard, FHA mortgage insurance premium (MIP) is not permanent. Neither is conventional mortgage insurance.
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 do the latter.
Homeowners are saving hundreds per month by refinancing — especially when they can take close to 1% off their rate.
Getting rid of FHA MIP is a big deal. Ready to start? You can check your eligibility for a new, PMI-free mortgage via a refinance.Click to see your FHA MIP removal eligibility (Feb 24th, 2020)
How long does FHA MIP last?
FHA loans fall into two categories: those with case numbers issued by June 3, 2013, and applications dated after that.»RELATED: FHA 203k Rehab Loan - Renovation Loan Program 2020
FHA MIP cancellation depends on this classification because that’s when FHA rules changed.
→FHA loans for which you completed an application after June 3, 2013
|Loan Term||Original Down Payment||MIP Duration|
|20, 25, 30 years||Less than 10%||Life of loan|
|20, 25, 30 years||More than 10%||11 years|
|15 years or less||Less than 10%||Life of loan|
|15 years or less||More than 10%||11 years|
→FHA loans for which you completed an application prior to June 3, 2013
|Loan Term||Original Down Payment||MIP Duration|
|20, 25, 30 years||Less than 10%||78% LTV based on original purchase price (5 years minimum)|
|20, 25, 30 years||10-22%||78% LTV based on original purchase price (5 years minimum)|
|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 cancel FHA mortgage insurance premiums
Most FHA homeowners today have a loan with the following characteristics
- Opened after June 2013
- Less than 10% down original down payment
- 30-year loan
Such a loan is not eligible for automatic mortgage insurance cancellation. The good news is that there are no restrictions on refinancing out of FHA into a conventional loan with no PMI. There are never any prepayment penalties on FHA loans, so you can refinance any time you want.
House values have risen dramatically over the past few years. A home you put just 3-5% down on a few years ago could have enough equity to refinance without taking on new PMI.
You only need about 20% equity to do so.Start your FHA MIP removal refinance here (Feb 24th, 2020)
Am I eligible to cancel my FHA mortgage insurance premium (MIP)?
If you received your FHA loan before June 2013, you are eligible for MIP cancelation after five years.
You must have 22% equity in the property, and you must have made all payments on time.
For homeowners with FHA loans issued after June 2013, you must refinance into a conventional loan and have a current loan-to-value of at 80% or greater.Click to see your FHA MIP removal eligibility (Feb 24th, 2020)
Canceling conventional private mortgage insurance (PMI)
You have more options to cancel mortgage insurance if you have a conventional (non-government) loan with PMI.
You can simply wait for it to drop off. By law, lenders must cancel conventional PMI when you reach 78% loan-to-value.
Many home buyers opt for a conventional loan, because PMI drops, while FHA MIP typically does not.
Keep in mind that most lenders base the 78% LTV on their last appraised value. If your property value has gone up substantially, contact the current servicer and check its requirements to cancel early.
The servicer may require a new appraisal, or rely on their 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.
Current FHA MIP rates
2018 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 an 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 3 years.
Refinancing into lower FHA MIP
You can use a conventional refinance to eliminate your FHA loan insurance altogether, or you can reduce your mortgage insurance premium by refinancing into another FHA loan.
You may have a higher rate of MIP than what is available today. Here is a history of FHA MIP.
- 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 FHA MIP will become non-cancelable, since your new loan will originate after June 2013, when FHA MIP rules changed.Click to see your FHA MIP removal eligibility (Feb 24th, 2020)
Reduced upfront and monthly MIP for certain refinancing homeowners
If you received your FHA loan prior to May 31, 2009, you can receive lower MIP rates via an FHA streamline refinance.
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.
A word to homebuyers: Deciding between FHA MIP and conventional PMI
The obvious advantage to conventional PMI is that it drops off automatically – no refinance necessary. That’s not the case with FHA MIP.
Yet, many home buyers choose FHA and its mortgage insurance because it is more cost-effective. The following chart shows FHA and conventional PMI costs 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.
Are there lenders that specialize in FHA-to-conventional refinances?
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 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.Start shopping for FHA rates here. (Feb 24th, 2020)
Can you take cash out when you do a mortgage insurance elimination refi?
Some homeowners with a lot of equity built up may be eligible to tap into that equity via a cash-out refinance.
Conventional cash out loans allow you to take up to 80% of your home’s value. If that’s more than your existing balance, you get to keep the extra cash, plus, avoid PMI.
FHA also has a cash-out offering, deemed the FHA cash out refinance. It allows loans up to 80% of your home’s value. However, you will still pay FHA mortgage insurance. So it’s best to consider the conventional version first.
When home values rise, cancel your FHA MIP
Paying FHA mortgage insurance doesn’t have to be permanent. You just have enough equity to refinance into a conventional loan.
According to the National Association of REALTORS®, the median home listed for sale in the U.S. was $269,600 in July 2018. That’s 4.5% higher than one year ago.
Some experts predict continued appreciation for years to come.
That means more homeowners will be 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.
How to refinance out of any home loan with mortgage insurance
The process to do so is straightforward. Get an estimate of value from a local real estate agent or loan officer. Online home valuation websites can be inaccurate, so be careful with those.
See if you have around 20% equity based on your home’s estimated value. Be sure to add closing costs onto your existing loan balance if you do not wish to pay them out of pocket.
For example, you purchased a home three years ago.
- Original purchase price: $200,000
- Original FHA loan amount: $196,375
- Payment with FHA MIP: $1,186
After three years, you’ve paid off principal, and your home’s value has risen. Both of these factors help you cancel your FHA MIP.
- New conventional loan amount: $188,000
- Current Value: $235,000
- Loan-to-value: 80%
- New payment (no PMI): $898
Refinancing out of FHA MIP can yield substantial savings. Homeowners who received an FHA loan prior to January 2015 are paying quite high FHA mortgage insurance premiums. This is because FHA dropped premiums by 35% in 2015, but only for new FHA applicants.
Pre-2015 FHA home buyers can get a double savings effect: they are tapping into today’s low rates and canceling high FHA mortgage insurance, with one refinance.
Q&A: Cancel FHA mortgage insurance
PMI (private mortgage insurance) is required on conventional loans with less than 20% down. But the rules are different for FHA loans. All FHA loans require mortgage insurance premium (MIP), regardless of down payment size. That means new FHA loans come with a 1.75% upfront mortgage insurance payment, and 0.85% annual mortgage insurance payment, even with 20% down.
That’s why many people with a larger down payment choose a conventional loan with no PMI. But there are also loan alternatives with no PMI and less than 20% down.
Mortgage insurance (PMI) is removed from conventional mortgages once the loan reaches 78% loan-to-value. But removing FHA mortgage insurance is a different story. Depending on your down payment, and when you first took out the loan, FHA mortgage insurance premium (MIP) usually lasts 11 years or the life of the loan. MIP will not fall off automatically. To remove MIP from an FHA loan, you’ll have to refinance into another mortgage program once you reach 20% equity.
If your FHA loan was originated before June 2013, you might be eligible to get rid of mortgage insurance. Those older FHA loans are eligible for MIP elimination after 5 years — though the loan must be at 78% LTV or lower. If your FHA loan was originated after June 2013, you are not eligible for FHA mortgage insurance cancellation. However, if you’ve built at least 20% equity in the home, you can get rid of MIP by refinancing into a different loan program. That usually means refinancing into a conventional loan with no PMI.
If you currently pay PMI or MIP mortgage insurance, you can get rid of it by refinancing once your home reaches 20% equity. If you’re shopping for a new home loan, look for options that allow no PMI even without 20% down. Homebuyers without 20% down can avoid mortgage insurance with a piggyback loan, lender-paid mortgage insurance, or a specialized mortgage program that doesn’t require PMI.
FHA does not calculate mortgage insurance individually. Instead, almost all new FHA borrowers pay the same mortgage insurance rates. That includes an upfront mortgage insurance premium (UFMIP) equal to 1.75% of the loan amount, paid at closing. Though most people roll this cost into the loan balance. FHA also charges an annual mortgage insurance premium (MIP) equal to 0.85% of the loan amount, which is broken out and included in your monthly mortgage payments.
The above rates apply to most new FHA loans. However, you might pay a different annual mortgage insurance premium if you make a bigger down payment or have a larger loan. See the full list of annual FHA mortgage insurance premiums above.
The only exception to these rates is for FHA borrowers with loans pre-dating 2009, who open a new FHA loan using the Streamline Refinance program.
FHA mortgage insurance rates do not go down each year. But your premium payments do. That’s because FHA charges annual MIP equal to 0.85% of the loan amount. So as your loan balance goes down each year, the dollar amount you pay for mortgage insurance is reduced as well.
In addition, FHA occasionally changes mortgage insurance rates for new borrowers. So if FHA drops the MIP rate for new loans, you may be able to reduce your mortgage insurance. You do this by using the FHA Streamline to refinance into a new FHA loan with lower MIP.
Recently, FHA announced that mortgage insurance rates will not change in 2020. That said, FHA can increase mortgage insurance at any time. But your own 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 conventional loans with PMI, and 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 PMI or 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 can always refinance into a conventional loan with no PMI once you have 20% 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.Click to see your FHA MIP removal eligibility (Feb 24th, 2020)
Step by Step Guide