FHA Mortgage Insurance Premium (MIP)
UFMIP, Annual MIP, and Cancellation

FHA Mortgage Insurance Premium (MIP) is the cost you pay for FHA to insure your loan against default. MIP consists of two components: an upfront premium (UFMIP) paid at closing, and an annual premium (MIP) paid monthly throughout the loan term. Understanding how MIP is calculated, what it costs, whether you can finance it, and when it can be canceled is essential for budgeting your total FHA loan cost. This article explains FHA Mortgage Insurance Premium based on official FHA Handbook 4000.1 standards.

Understanding FHA Mortgage Insurance

What Is Mortgage Insurance?

Purpose: FHA insurance protects the lender if the borrower defaults, making FHA loans possible for borrowers with lower credit scores and down payments.

Cost to borrower: You pay the insurance premium to cover this risk.

FHA's role: FHA doesn't lend money—lenders do. FHA insures the loan, protecting the lender's investment.

Why FHA Insurance Costs Less Than Conventional

FHA MIP rates: Typically 0.50-0.85% annually (depends on LTV and term)

Conventional mortgage insurance: Typically 0.50-1.50% annually (varies by credit score and LTV)

Key difference: FHA uses a single MIP rate for all borrowers with the same LTV and loan term, while conventional insurance varies by individual credit score.

The Two Components of FHA Mortgage Insurance

Component 1: Upfront Mortgage Insurance Premium (UFMIP)

What it is: A one-time fee paid at closing (or financed into the loan)

Amount: 1.75% of the Base Loan Amount (175 basis points)

Calculated on: Base Loan Amount BEFORE adding UFMIP into the mortgage

Example:

• Purchase price: $300,000
• Down payment (3.5%): $10,500
• Base loan amount: $289,500
• UFMIP: 1.75% × $289,500 = $5,066.25
• Total mortgage amount (if financed): $289,500 + $5,066.25 = $294,566.25

Component 2: Annual Mortgage Insurance Premium (MIP)

What it is: An ongoing yearly premium collected in monthly installments

Amount: Varies by Loan-to-Value (LTV) and loan term (see MIP chart below)

Calculated on: Base Loan Amount (excluding UFMIP)

Paid: Monthly as part of regular mortgage payment

Duration: Continues for the life of the loan OR until cancellation conditions are met (varies by case number date)

How UFMIP Is Calculated and Paid

UFMIP Amount: 1.75%

Standard UFMIP rate: 1.75% of Base Loan Amount

Exceptions (different rates apply):

• Streamline Refinance of old FHA mortgages: 0.01% (much lower)
• Hawaiian Home Lands (Section 247): Special calculation (2.4%-3.8%)
• Indian Lands (Section 248): NO UFMIP required

Two Options for Paying UFMIP

Option 1: Finance UFMIP into the Loan

Most borrowers choose this option to minimize out-of-pocket cash at closing.

How it works:

• UFMIP is added to the mortgage amount
• You pay it off over 30 years like regular mortgage principal
• Increases monthly payment slightly

Example (UFMIP financed):

• Base loan amount: $289,500
• UFMIP (1.75%): $5,066.25
• Total financed: $294,566.25
• At 6% interest, 30-year term: approximately $1,767/month

Option 2: Pay UFMIP in Cash at Closing

Reduces the mortgage amount and monthly payment.

How it works:

• You pay $5,066.25 in cash at closing
• Mortgage stays at $289,500 (not increased)
• Lower monthly payment going forward

Example (UFMIP paid in cash):

• Base loan amount: $289,500
• UFMIP paid: $5,066.25 (out of pocket at closing)
• Total financed: $289,500
• At 6% interest, 30-year term: approximately $1,738/month
• Saves approximately $29/month compared to financing UFMIP

UFMIP Rules and Requirements

UFMIP must be paid entirely one way or the other:

• Either FULLY financed into the loan, OR
• Entirely paid in cash
• Cannot split the payment (except for remainders less than $1.00)

UFMIP is NOT refundable:

• If you pay in cash and then refinance, you don't get the UFMIP back
• Exception: FHA-to-FHA refinances can receive a UFMIP credit (partial refund) if refinanced within 3 years

Timing: UFMIP must be paid to FHA within 10 days after closing (if not already collected)

Annual Mortgage Insurance Premium (MIP) Rates and Duration

MIP Rates: Based on LTV and Loan Term

MIP varies by:

• Loan-to-Value (LTV) ratio: Percentage of loan to property value
• Loan term: 15-year, 20-year, 30-year, etc.

MIP Rate Chart (Standard Mortgages)

For mortgages with terms of MORE THAN 15 years:

Base Loan Amount	LTV	MIP Rate	Duration
≤ $726,200	≤ 90%	0.50%	11 years
≤ $726,200	> 90%	0.55%	Life of loan*
> $726,200	≤ 90%	0.65%	Life of loan*
> $726,200	> 90%	0.80%	Life of loan*

*"Life of loan" = MIP continues for entire mortgage term (no automatic cancellation)

For mortgages with terms of 15 YEARS OR LESS:

Base Loan Amount	LTV	MIP Rate	Duration
≤ $726,200	≤ 90%	0.15%	11 years
≤ $726,200	> 90%	0.40%	Life of loan*
> $726,200	≤ 90%	0.50%	Life of loan*
> $726,200	> 90%	0.65%	Life of loan*

Understanding LTV in MIP Calculation

LTV = Loan Amount ÷ Appraised Value

Example:

• Purchase price: $300,000
• Appraised value: $300,000
• Down payment (3.5%): $10,500
• Loan amount: $289,500
• LTV = $289,500 ÷ $300,000 = 96.5%
• LTV > 90%, so higher MIP rate applies

How Monthly MIP Payment Is Calculated

Formula: Annual MIP ÷ 12 = Monthly MIP Payment

Example:

• Base loan amount: $289,500
• Annual MIP rate: 0.55% (for 30-year term with LTV > 90%)
• Annual MIP: $289,500 × 0.0055 = $1,592.25/year
• Monthly MIP: $1,592.25 ÷ 12 = $132.69/month
• This is added to your principal, interest, taxes, insurance (PITI) payment

Total Cost Examples: UFMIP + Annual MIP

Example 1: $300,000 Purchase with 3.5% Down

Loan details:

• Purchase price: $300,000
• Down payment (3.5%): $10,500
• Base loan amount: $289,500
• LTV: 96.5%
• Loan term: 30 years
• Interest rate: 6.0%

MIP costs:

• UFMIP: 1.75% × $289,500 = $5,066.25
• Annual MIP rate: 0.55% (> 90% LTV, term > 15 years)
• Annual MIP: $289,500 × 0.0055 = $1,592.25
• Monthly MIP: $1,592.25 ÷ 12 = $132.69

If UFMIP is financed:

• New loan amount: $289,500 + $5,066.25 = $294,566.25
• Principal & interest: ~$1,767/month
• MIP: ~$133/month
• Total with MIP: ~$1,900/month (plus taxes, insurance)

If UFMIP is paid in cash:

• Loan amount: $289,500
• Principal & interest: ~$1,738/month
• MIP: ~$133/month
• Total with MIP: ~$1,871/month (plus taxes, insurance)
• Cash saved by paying UFMIP: ~$5,066 at closing

Example 2: $500,000 Purchase with 5% Down (Slightly Higher Down Payment)

Loan details:

• Purchase price: $500,000
• Down payment (5%): $25,000
• Base loan amount: $475,000
• LTV: 95%
• Loan term: 30 years
• Interest rate: 6.0%

MIP costs:

• UFMIP: 1.75% × $475,000 = $8,312.50
• Annual MIP rate: 0.55% (> 90% LTV)
• Annual MIP: $475,000 × 0.0055 = $2,612.50
• Monthly MIP: $2,612.50 ÷ 12 = $217.71

Monthly payment impact:

• Principal & interest: ~$2,852/month
• MIP: ~$218/month
• Total with MIP: ~$3,070/month (plus taxes, insurance)

When MIP Can Be Canceled

Critical Rule: Depends on Loan's Case Number Date

FHA changed MIP cancellation rules in 2013. When your loan was assigned a case number determines if and when MIP can be canceled.

Loans with Case Numbers BEFORE June 3, 2013

Automatic MIP Cancellation conditions:

For mortgages with terms > 15 years:

• When LTV reaches 78% of the LESSER of original purchase price or appraised value, AND
• Borrower has paid MIP for at least 5 years

Example:

• Original purchase price: $300,000
• LTV cancellation threshold: 78% × $300,000 = $234,000
• Borrower pays down to $234,000 balance
• After 5 years of MIP payments: MIP cancels automatically

For mortgages with terms ≤ 15 years:

• When LTV reaches 78% of original value
• Timing depends on specific case number date (varies)

Loans with Case Numbers ON or AFTER June 3, 2013

Automatic MIP Cancellation:

• Depends on LTV at origination
• If LTV ≤ 90%: MIP automatically cancels when LTV reaches 78%
• If LTV > 90%: MIP continues for LIFE OF LOAN (no automatic cancellation)

This is critical: Most FHA loans made since 2013 with LTV > 90% cannot have MIP canceled automatically, no matter how much principal is paid down.

Borrower-Initiated MIP Cancellation (Pre-June 3, 2013 Cases Only)

If you want to cancel MIP early:

• Reach 78% LTV through extra principal payments
• Request cancellation through your lender
• Must be at least 5 years into the loan (for terms > 15 years)
• Lender processes cancellation in FHA system

Note: For post-June 3, 2013 cases with > 90% LTV, borrower-initiated cancellation is NOT available.

Important: MIP Cancellation Does NOT Equal Loan Payoff

Clear misunderstanding: Many borrowers think canceling MIP means paying off the loan.

Reality: MIP cancellation ONLY stops the insurance premium payment. You still owe the principal and interest on the mortgage.

Factors Affecting Total MIP Cost

How Down Payment Size Affects MIP

Larger down payment = Lower LTV = Lower MIP rate

Example comparison:

3.5% down:

• LTV: 96.5%
• MIP rate: 0.55% annually
• Annual MIP cost: High

10% down:

• LTV: 90%
• MIP rate: 0.50% annually (if term > 15 years)
• Annual MIP cost: Lower

Lesson: Putting down 5-10% instead of 3.5% can reduce annual MIP costs, potentially saving thousands over the loan term.

How Loan Term Affects MIP

15-year loans typically have LOWER MIP rates than 30-year loans

30-year loan (LTV > 90%):

• MIP rate: 0.55%
• Paid monthly over 30 years
• Total MIP paid: Higher dollar amount due to longer term

15-year loan (LTV > 90%):

• MIP rate: 0.40%
• Paid monthly over 15 years
• Total MIP paid: Lower dollar amount, shorter term

Special MIP Situations

FHA-to-FHA Refinance: UFMIP Credit

If you refinance from one FHA loan to another FHA loan within 3 years:

UFMIP Refund Schedule:

• Year 1: 80% credit (pay only 20% of new UFMIP)
• Year 2: 60% credit (pay only 40% of new UFMIP)
• Year 3: 20% credit (pay only 80% of new UFMIP)
• After year 3: No credit (pay full UFMIP)

Example:

• Original UFMIP paid: $5,000
• Refinance in Year 2
• New UFMIP would be: $5,200
• Credit applied: 60% × $5,200 = $3,120
• You only pay: $5,200 - $3,120 = $2,080 UFMIP on refinance

Streamline Refinance: Minimal MIP

Streamline Refinance of FHA loans endorsed before May 31, 2009:

UFMIP: Only 0.01% (essentially waived)

Annual MIP: 0.55% regardless of LTV

Benefit: Much lower MIP costs compared to standard refinance

Hawaiian Home Lands (Section 247)

Different MIP structure:

• Higher UFMIP: 2.4%-3.8% (depends on loan term)
• NO annual MIP charged
• Different calculations apply

How MIP Affects Your Qualification and Payment

MIP Counts in DTI (Debt-to-Income) Ratio

Monthly MIP is part of your PITI payment:

• P = Principal
• I = Interest
• T = Taxes
• I = Insurance
• MIP = included in this total for DTI calculation

Example:

• Total housing payment: $2,500
• This includes the $133/month MIP
• Total income: $6,500
• Housing ratio: $2,500 ÷ $6,500 = 38.5%
• MIP is included in this calculation

MIP Impact on Loan Affordability

Higher MIP = Lower maximum loan amount

Example:

• Income: $5,000/month
• Maximum housing payment (30% ratio): $1,500
• With higher MIP: Less available for principal, interest, taxes, insurance
• Results in lower maximum loan amount

Key Takeaways for Mortgage Insurance Premium

1. UFMIP is 1.75% of the Base Loan Amount, paid once at closing or financed

2. Annual MIP varies from 0.15% to 0.80% depending on LTV and loan term

3. MIP is paid monthly as part of your regular mortgage payment

4. You can finance UFMIP into the loan to minimize cash at closing

5. MIP rates depend heavily on LTV - higher down payment = lower MIP

6. MIP cancellation rules changed in 2013 - determines if you can ever stop paying MIP

7. Most loans since 2013 with > 90% LTV cannot have MIP canceled (lifetime MIP)

8. UFMIP is not refundable except for FHA-to-FHA refinances within 3 years

9. MIP includes in DTI - affects qualification and maximum loan amount

10. Total MIP cost is significant - 0.55% annual × 30 years of payments = major expense

Conclusion

FHA Mortgage Insurance Premium protects FHA lenders and enables borrowers with lower down payments to qualify for loans they otherwise couldn't get. While MIP is an ongoing cost that increases your monthly payment and reduces your borrowing capacity, it opens homeownership to millions of borrowers who might not otherwise qualify. Understanding how UFMIP and annual MIP are calculated, what options you have for paying them, and when (if ever) they can be canceled helps you make informed decisions about FHA financing.