FHA Mortgage Insurance (MIP) Explained — What It Costs and How Long You Pay It
FHA mortgage insurance is one of the most important costs to understand before choosing an FHA loan. It adds to your monthly payment and affects your long-term financial picture. Here’s a complete breakdown.
Why FHA Requires Mortgage Insurance
FHA loans are insured by the government. In exchange for backing your loan, the FHA charges borrowers a mortgage insurance premium (MIP). This fee goes into HUD’s Mutual Mortgage Insurance fund, which pays lenders when borrowers default. Without this insurance, lenders couldn’t offer the flexible terms the FHA program provides.
Two Types of MIP
1. Upfront Mortgage Insurance Premium (UFMIP)
- Amount: 1.75% of your base loan amount
- When paid: At closing — most borrowers roll it into the loan
- Example: $500,000 base loan × 1.75% = $8,750 UFMIP
If you refinance to another FHA loan within 3 years, you may receive a partial UFMIP refund (declining from 80% in month 1 to 10% in month 36).
2. Annual Mortgage Insurance Premium (Monthly MIP)
Paid monthly. The rate depends on your loan term, loan amount, and LTV ratio.
| Loan Amount | LTV | Annual MIP Rate (30-yr loan) |
|---|---|---|
| ≤ $726,200 | ≤ 90% | 0.50% |
| ≤ $726,200 | 90.01–95% | 0.50% |
| ≤ $726,200 | > 95% | 0.55% |
| > $726,200 | ≤ 90% | 0.70% |
| > $726,200 | 90.01–95% | 0.70% |
| > $726,200 | > 95% | 0.75% |
How Long Do You Pay MIP?
- Down payment less than 10% (LTV > 90%): MIP continues for the full loan term
- Down payment 10% or more (LTV ≤ 90%): MIP is cancelled after 11 years
What MIP costs over the first few years
Illustrative example, not a quote: on a $500,000 base loan, the upfront premium is $8,750, so the financed balance becomes $508,750. The monthly premium at the 0.55% rate used in the example above is about $229, so five years of premiums come to roughly $13,750 before the balance is paid down, which lowers it slightly. This is the figure to compare with conventional PMI when you weigh the two programs.
Ways to reduce or end MIP
- Put 10% or more down. For case numbers assigned after June 3, 2013, that limits MIP to 11 years instead of the life of the loan.
- Refinance into a conventional loan after you have built enough equity. PMI on a conventional loan can be requested off at 80% LTV of the original value and ends at 78% under federal law if payments are current.
- Refinance into another FHA loan within three years, which may bring a partial refund of the upfront premium, though the new loan has its own upfront premium.
- Ask whether a different loan amount or term changes the rate band you fall into.
Which loans follow these rules
The 11-year and life-of-loan distinction depends on the original loan-to-value and case number date. Loans with older case numbers follow earlier rules, so if you are reviewing an existing FHA loan, bring the original closing documents and we will confirm the schedule.
Frequently asked questions
Can I deduct mortgage insurance premiums?
Tax treatment of mortgage insurance has changed over the years and depends on your situation. Consult a tax professional rather than assuming either way.
Is MIP cheaper than PMI?
It depends on your score and down payment. FHA pricing is not tied to credit score, so it can be favorable at lower scores, while strong-credit borrowers often see lower PMI. We compare both on your file.
Does MIP end if my home value rises?
On a loan with MIP for the life of the loan, rising value alone does not end it. Refinancing into a loan with an appraisal showing enough equity is the way out.
Related guides
- FHA versus conventional
- How conventional PMI works
- FHA streamline refinance
- FHA down payment requirements
- FHA calculator
Practical Takeaways
- UFMIP is 1.75% of loan amount — usually rolled in
- Monthly MIP ranges from 0.50%–0.75% for most California buyers on a 30-year loan
- Less than 10% down means MIP for the life of the loan
- Putting 10% or more down limits MIP to 11 years
- Five years of MIP on a $500,000 loan can add up to roughly $13,750 in this example.
- Putting 10% down limits MIP to 11 years on newer loans.
- Refinancing into a conventional loan is the usual way to end MIP early.