FHA Mortgage Insurance Premium (MIP) — What It Costs and When It Stops

The short version: FHA's Mortgage Insurance Premium comes in two parts — 1.75% upfront, plus a monthly premium. If you put down less than 10%, that monthly premium lasts the entire length of the loan. At 10% or more down, it stops after 11 years. That one difference can be worth nearly $20,000 over a 30-year loan.

It's two charges, not one

FHA's Mortgage Insurance Premium — MIP — is collected in two separate ways.

Upfront: 1.75% of the loan. On a $386,000 loan that's $6,755. Most people roll it into the loan rather than paying it at closing — which is why an FHA loan amount usually comes out higher than the purchase price minus the down payment.

Annual: paid monthly. Between 0.15% and 0.75% of your balance, depending on your loan size, your term, and how much you put down. For a typical 30-year loan under $726,200, it's 0.50% or 0.55%. FHA recalculates it each year as your balance drops, so it declines slowly over time.

The 10% rule

This is the part that catches people, and it has nothing to do with the rate.

How long you pay annual MIP depends on your loan-to-value at closing:

• 90% LTV or lower (10% or more down) — you'll be paying for 11 years
• Above 90% LTV (less than 10% down) — you'll be paying for the entire loan term

Two buyers, same $400,000 home, same 6.5% interest rate, same 30-year loan. One puts 5% down, the other puts 10%.

Both pay the same MIP rate of 0.50%, so their monthly premium is nearly identical — within a few dollars of each other.

The buyer who put 10% down stops paying MIP after 11 years, for about $18,300 total.

The buyer who put 5% down pays it for all 30 years, for about $37,300 total.

That's about $19,000 more for the same house at the same rate. The extra cost isn't a bigger premium — it's paying that premium for 30 years instead of 11. The size of the down payment is the only thing that decided it.

One wrinkle: FHA's minimum down payment depends on your credit score. At 580 or above you can put down as little as 3.5%. Between 500 and 579, FHA requires 10% — which, going by the rule above, puts those buyers in the 11-year group rather than paying MIP for the life of the loan.

FHA charges it at every down payment level

Conventional PMI stops applying once you reach 20% down. FHA MIP doesn't work that way. Put 20% down on an FHA loan and you still pay MIP for 11 years. There's no down payment large enough to avoid it altogether.

How people get out of it

If your MIP runs the full loan term, no equity milestone removes it. Paying the loan down doesn't help. Neither does your home appreciating.

The usual route out is refinancing into a conventional loan once you have enough equity. At that point conventional PMI rules apply, and PMI has to come off at 78% loan-to-value. Whether that math works depends on rates at the time and what closing costs run, so it's a calculation rather than a given.

FHA's rates, thresholds, and loan limits change periodically, and individual situations vary in ways a general guide can't account for. Your lender can confirm which MIP rate and duration actually apply to your loan, and whether a different loan type would fit you better. Ask them before you settle on one.