A mortgage insurance premium on an FHA loan is a fee that protects the lender if you default, and it comes in two parts: an upfront charge of 1.75% of the loan amount paid at closing, and an annual charge of 0.15% to 0.75% of the balance, billed monthly with your mortgage payment.1Department of Housing and Urban Development (HUD). Appendix 1.0 – Mortgage Insurance Premiums MIP is not optional on any FHA loan, and for borrowers who put down less than 10%, it lasts the entire life of the loan.
Why FHA Loans Carry MIP
FHA loans exist for buyers who would struggle to qualify for conventional financing, usually because of lower credit scores or a small down payment. That flexibility pushes more risk onto the lender, and MIP is how FHA offsets it. Premiums flow into a federal insurance fund managed by HUD, which reimburses lenders when a borrower defaults and the home is foreclosed on. Every FHA borrower pays in, regardless of their individual default risk. That’s the tradeoff for the program’s lower entry requirements.
How Much MIP Costs
The Upfront Premium
Every FHA loan carries an upfront MIP of 1.75% of the base loan amount. On a $300,000 loan, that’s $5,250. Most borrowers roll it into the loan balance rather than paying it at closing, which avoids the immediate cash hit but means paying interest on the amount for the full term. On a 30-year mortgage at 7%, financing the upfront MIP on a $300,000 loan adds roughly $7,400 in total interest.
The Annual Premium
The annual MIP is divided into 12 monthly installments and folded into your mortgage payment. The rate depends on your loan term, loan amount, and down payment. HUD updated these rates in March 2023, and they remain in effect.2HUD. Reduction of Federal Housing Administration (FHA) Annual Mortgage Insurance Premium (MIP) Rates
For loan terms longer than 15 years, which covers the standard 30-year mortgage most FHA borrowers use:
- Loan amount at or below $726,200, down payment 10% or more: 0.50% annually, lasting 11 years
- Loan amount at or below $726,200, down payment 5% to 9.99%: 0.50% annually, lasting the full loan term
- Loan amount at or below $726,200, down payment under 5%: 0.55% annually, lasting the full loan term
- Loan amount above $726,200, down payment 10% or more: 0.70% annually, lasting 11 years
- Loan amount above $726,200, down payment 5% to 9.99%: 0.70% annually, lasting the full loan term
- Loan amount above $726,200, down payment under 5%: 0.75% annually, lasting the full loan term
For loan terms of 15 years or less:
- Loan amount at or below $726,200, down payment 10% or more: 0.15% annually, lasting 11 years
- Loan amount at or below $726,200, down payment under 10%: 0.40% annually, lasting the full loan term
- Loan amount above $726,200, down payment 22% or more: 0.15% annually, lasting 11 years
- Loan amount above $726,200, down payment 10% to 21.99%: 0.40% annually, lasting 11 years
- Loan amount above $726,200, down payment under 10%: 0.65% annually, lasting the full loan term
For the typical FHA borrower — a 30-year loan under $726,200 with the minimum 3.5% down — the annual MIP is 0.55%. On a $300,000 loan, that’s about $138 per month on top of principal, interest, taxes, and homeowners insurance.
Your annual MIP isn’t a flat dollar amount forever. HUD recalculates it each year based on the average outstanding balance across the coming 12 months.3U.S. Department of Housing and Urban Development (HUD). Monthly (Periodic) Mortgage Insurance Premium Calculation As you pay down principal, the monthly MIP shrinks slightly. In the early years the reduction is small, since most of your payment goes to interest. Your servicer collects the premium through escrow, so it appears as a line item on your monthly statement rather than a separate bill.
When You Can Stop Paying MIP
Whether MIP ever comes off depends on when your loan was originated and how much you put down. The dividing line is a single date: June 3, 2013.
Loans Originated on or After June 3, 2013
For loans with case numbers assigned on or after this date, the rules are simple and, for many borrowers, unwelcome:4Department of Housing and Urban Development (HUD). Mortgagee Letter 2013-04 Revision of Federal Housing Administration (FHA) Policies
- Down payment under 10%: MIP lasts the full loan term, up to 30 years. There is no way to cancel it while keeping the FHA loan.
- Down payment of 10% or more: MIP drops off automatically after 11 years.
This surprises many FHA borrowers. Unlike private mortgage insurance on a conventional loan, FHA MIP does not cancel when you hit 78% or 80% loan-to-value. Paying the balance down faster won’t shorten it. If you put less than 10% down, the only ways out are paying the mortgage off or refinancing into a different loan.
Loans Originated Before June 3, 2013
Older FHA loans have friendlier cancellation rules. For terms longer than 15 years, HUD automatically cancels MIP once your loan-to-value ratio reaches 78% of the original value, provided you’ve paid MIP for at least five years.5U.S. Department of Housing and Urban Development. How Long Is MIP Collected for a Loan Closed on or After January 1, 2001, With a Case Number Assigned Prior to June 3, 2013 For 15-year loans, the five-year minimum generally doesn’t apply, and MIP ends at the 78% threshold regardless of how fast you get there.
Borrowers with pre-2013 loans can also request early cancellation if extra payments have brought the balance below 78% ahead of schedule, as long as they haven’t been more than 30 days late in the past 12 months. For loans longer than 15 years, the five-year minimum payment period still applies even when prepayments hit the 78% mark earlier.
Refinancing Out of MIP
For post-2013 borrowers stuck with lifetime MIP, the usual escape route is refinancing into a conventional loan once you have enough equity. A conventional loan with 20% equity carries no mortgage insurance at all. With less than 20%, you’ll pay private mortgage insurance instead, but PMI cancels automatically at 78% LTV, so it still beats permanent FHA MIP.
Refinancing costs money and requires a credit score that meets conventional standards. For borrowers who took out an FHA loan to get into a home and have since built equity and improved their credit, the savings from dropping MIP often cover the closing costs within a year or two.
Partial Refund on the Upfront Premium
If you refinance one FHA loan into another through the Streamline Refinance program within three years of your original closing, you can get a partial credit on the upfront MIP you already paid.6HUD. Upfront Premium Payments and Refunds The credit is applied directly toward the upfront MIP on the new loan. The percentage shrinks the longer you wait:
- 7 months after closing: 68% refund
- 11 months after closing: 60% refund
- 36 months after closing: 10% refund
You can’t file on day one. FHA requires at least 210 days from closing and six on-time payments before you’re eligible for a Streamline Refinance, and the new loan must produce a net tangible benefit (a lower monthly payment or a lower combined interest-and-MIP cost). After the three-year window closes, no refund is available. Refinancing from FHA into a conventional loan doesn’t qualify for the refund; it only applies to FHA-to-FHA refinances.
What Happens if You Miss Payments
MIP is bundled into your monthly mortgage bill, so a missed mortgage payment is a missed MIP payment. Late fees hit, the delinquency gets reported to the credit bureaus, and your score takes damage that can follow you for years.
Because FHA loans are government-backed, HUD requires servicers to offer loss mitigation before moving to foreclose. The options include a repayment plan that spreads the past-due amount over future payments, forbearance that pauses or reduces payments temporarily, a partial claim that shifts your arrears into a separate interest-free lien repaid when you sell or refinance, a loan modification that permanently changes your terms, and a payment supplement that combines a partial claim with a temporary payment reduction for up to three years.7U.S. Department of Housing and Urban Development (HUD). FHA Loss Mitigation Program You can only receive one permanent loss mitigation option in any 24-month period, unless you’re affected by a presidentially declared major disaster. If none of these resolve the delinquency, the lender can foreclose, and a foreclosure stays on your credit report for up to seven years.