What Is an FHA Mortgage Insurance Premium?
Quick Answer
An FHA mortgage insurance premium is a fee borrowers pay to protect lenders in case of default. Premiums are paid in two parts: an upfront premium and an annual premium. The amount you’ll pay depends on the size of your loan and down payment.
An FHA mortgage insurance premium is a fee paid by all FHA borrowers. FHA loans, or loans backed by the Federal Housing Administration, require this insurance to protect lenders when borrowers fall behind on mortgage payments. If you can't qualify for a conventional loan, FHA loans and the associated mortgage insurance premiums may allow you to purchase a home with a smaller down payment and lower credit score.
While an FHA loan might make homeownership possible for you, FHA mortgage insurance premiums are a cost you'll have to plan for.
What Is an FHA Mortgage Insurance Premium?
FHA mortgage insurance premiums (MIPs) are additional costs that come with FHA mortgages. An FHA MIP is required for all FHA loans, regardless of loan amount, down payment size or the borrower's credit score. While borrowers shoulder the cost, FHA mortgage insurance premiums protect lenders in case a borrower defaults on their loan.
As a borrower, you'll pay an FHA MIP in two parts:
- An upfront mortgage insurance premium: You can pay the upfront premium in full at closing, or you can finance it into the cost of your loan.
- An annual mortgage insurance premium: You'll pay the annual premium, divided by 12, each month with your monthly mortgage payment. Borrowers must pay annual premiums for the duration of their loan unless they make a 10% down payment, in which case they'll pay MIP for 11 years.
How Much Does FHA Mortgage Insurance Cost?
The cost of FHA mortgage insurance depends on factors like your loan amount and down payment size. Upfront MIPs and annual MIPs are calculated differently.
The upfront MIP is a one-time fee equal to 1.75% of your loan amount. For example, if you take out an FHA loan of $300,000, you'll owe an upfront MIP of $5,250.
The annual MIP, on the other hand, depends on your loan amount and your loan-to-value (LTV) ratio, or the percentage of your home's value the lender will finance.
The following tables show how much you can expect to pay in annual fees based on your loan amount, LTV ratio and FHA loan type.
Loan Term of 15 Years or Less
| Loan Amount | LTV Ratio | MIP Rate | Duration of MIP |
|---|---|---|---|
| $726,200 or less | Up to 90% | 0.15% | 11 years |
| Over 90% | 0.40% | Mortgage term | |
| More than $726,200 | Up to 78% | 0.15% | 11 years |
| 78% to 90% | 0.40% | 11 years | |
| Over 90% | 0.65% | Mortgage term |
Loan Term Greater Than 15 Years
| Loan Amount | LTV Ratio | MIP Rate | Duration of MIP |
|---|---|---|---|
| $726,200 or less | 90% or less | 0.50% | 11 years |
| More than 90% and less than or equal to 95% | 0.50% | Mortgage term | |
| Over 95% | 0.55% | Mortgage term | |
| More than $726,200 | 90% or less | 0.70% | 11 years |
| More than 90% and less than or equal to 95% | 0.70% | Mortgage term | |
| Over 95% | 0.75% | Mortgage term |
Streamline Refinances
| Loan Amount | LTV Ratio | MIP Rate | Duration of MIP |
|---|---|---|---|
| Any | 90% or less | 0.55% | 11 years |
| Over 90% | 0.55% | Mortgage term |
FHA Mortgage Insurance vs. Private Mortgage Insurance
Like FHA mortgage insurance, private mortgage insurance (PMI) protects lenders when a borrower defaults on their loan. While these two types of mortgage insurance are similar, they're not the same.
PMI applies to conventional mortgages not backed by the government, not FHA loans. If you take out a conventional loan and put less than 20% down, you'll have to pay PMI. But when you reach 20% equity in your home, you can ask your lender to cancel the insurance. If you don't request cancellation, the lender will automatically cancel PMI when you reach 22% equity.
On the other hand, FHA mortgage insurance is unavoidable. Anyone who takes out an FHA loan needs FHA mortgage insurance, regardless of the size of your down payment. And you can't cancel it by reaching a certain level of equity. Depending on the size of your down payment, you'll either pay an FHA MIP for 11 years or the duration of your mortgage term.
When Can You Cancel FHA Mortgage Insurance?
Unlike PMI, you can't remove FHA mortgage insurance after reaching 20% equity in your home. Instead, the duration of required FHA mortgage insurance depends on when you got the loan and the size of your down payment.
The table below shows if and how you can cancel FHA MIP according to your mortgage origination date.
| Mortgage Origination Date | MIP Cancellation Policy |
|---|---|
| July 1991 to December 2000 | You can't cancel your MIP |
| January 2001 to June 3, 2013 | MIP will be canceled once you reach LTV of 78% (if you're in good standing with payments) |
| On or after June 3, 2013 | If down payment was 10% or more: MIP will be canceled after 11 years |
| If down payment was less than 10%: MIP will be paid over the life of the loan |
How to Lower Your FHA Mortgage Insurance Payments
All FHA loans require mortgage insurance, at least for a period of time. But you may be able to lower your payments if you can do one of the following:
- Make a bigger down payment. Putting more money down lowers your LTV ratio, which can reduce both your MIP and the length of time you have to pay it.
- Refinance to a conventional loan. Conventional loans generally don't require mortgage insurance once you have at least 20% equity in your home. If you can qualify for a conventional loan refinance and reach 20% equity, you can cancel your mortgage insurance.
- Pay off the loan faster. Sometimes, paying off your FHA loan is the only way to get rid of your mortgage insurance. In that case, you can cancel your MIP sooner by paying off your mortgage early.
Learn more: Should I Pay Off My Mortgage Early?
Frequently Asked Questions
The Bottom Line
If you need an FHA loan to attain homeownership, know you'll have to pay a mortgage insurance premium (MIP) upfront and annually—potentially for the duration of your mortgage. The amount you'll pay for an FHA MIP depends on a few different factors: your loan amount, your LTV ratio and your loan origination date.
While you can't cancel an FHA MIP, you may be able to lower your payments by refinancing to a conventional loan, making a bigger down payment or paying your loan off early.
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About the author
Emily Batdorf
Emily Batdorf is a finance writer based in northern Michigan. She specializes in topics including budgeting, banking and debt payoff, leveraging her education background to break complex topics into approachable content.
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