How To Remove Mortgage Insurance On FHA Loan

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Loans insured by the Federal Housing Administration, or FHA loans, require borrowers to pay FHA mortgage insurance premiums (MIP). These are additional fees borrowers pay both up front and over the course of the mortgage term, regardless of the down payment amount. Eliminating these premiums can be challenging, but it’s not impossible. Here’s how to get rid of FHA mortgage insurance premiums.

What is FHA mortgage insurance?

No matter how large a down payment FHA borrowers make, they’re required to pay FHA mortgage insurance premiums. FHA mortgage insurance includes both an upfront premium that’s often paid at closing and an annual premium that may have to be paid for the life of the loan.

Borrowers who take out a conventional loan only have to pay for private mortgage insurance (PMI) if they put down less than 20 percent on their home. And once a borrower has achieved 20 percent equity in the home, they may cancel PMI.

How to get rid of mortgage insurance on an FHA loan

1. Check your eligibility

The most important factor determining whether your FHA mortgage insurance premium can be canceled is the date your loan was originated.

Here’s how eligibility breaks down by loan origination date:

• If your origination date was between July 1991 and December 2000: You can’t cancel your FHA mortgage insurance premiums. You’ll need to keep paying them for the life of the loan.
• If your origination date was between January 2001 and June 3, 2013: Your MIP is typically canceled when you reach a loan-to-value (LTV) ratio of 78 percent.
• If your origination date was after June 3, 2013 and you made a down payment of at least 10 percent: Your MIP will be canceled after 11 years. For down payments of less than 10 percent, you’ll pay MIP for the life of the loan.

2. Understand your options

There are two primary ways to eliminate mortgage insurance from an FHA loan:

Wait for automatic removal (if eligible)

If you meet the eligibility requirements to remove MIP from an FHA loan, your mortgage servicer should automatically cancel the premiums once you meet the criteria: a 78 percent LTV ratio or 11 years, depending on the loan. That’s assuming you’re in good standing with a record of on-time mortgage payments. If you qualify, and your premiums haven’t been canceled, contact your servicer.

Refinance to a conventional loan

If you don’t qualify for automatic removal — or you do, but want to eliminate the MIP sooner — consider refinancing your FHA loan to a conventional loan. With a conventional loan, you may cancel PMI once you’ve reached 20 percent equity in your home. Depending on how much you’ve paid on your loan, you may not need to pay PMI at all after refinancing to a conventional. Here are a few key considerations:

• Interest rates: In general, it makes sense to refinance if you can get a refinance rate that’s at least half to three-quarters of a percentage point less than your current rate.
• Credit score: If you’ve improved your credit since you took out your original loan, you might qualify for a conventional loan with a better rate. Conventional loans typically require a minimum credit score of at least 620, though the higher your credit score, the more likely you are to qualify.
• LTV ratio: A LTV ratio is a mortgage balance divided by the value of the property, and it influences your ability to refinance, as well as the need for PMI. So, in addition to how much you’ve paid on your FHA loan, take stock of the value of your home. Is it worth more today due to rising property values or a major renovation? If so, that’ll lower your LTV ratio and improve your chances of qualifying and the terms you’re offered.
• Refinance closing costs: You’ll need to pay closing costs to refinance, so do the math: Will the upfront cost of refinancing be worth the savings in the long run? Our mortgage refinance calculator can help you see how long it’d take to break even and then start profiting from the refi.

3. Contact your servicer

If your loan isn’t eligible for MIP cancellation, it’s worth contacting your servicer anyway, especially if you’re having trouble making payments. Your servicer can help you explore a loan modification or other options.

What happens after removing mortgage insurance?

Once mortgage insurance is removed, your monthly mortgage payment will decrease. MIPs range in cost from 0.15 percent to 0.75 percent of your loan principal, depending on how much you borrowed and the loan’s term. Most borrowers pay 0.55 percent.

It adds up: Even if you pay only a hundred dollars or so a month in MIP, you could put that money toward emergency savings or another financial goal. Or you might put the extra toward the principal on your mortgage. This will help you pay off your loan faster and pay less interest overall.

Should you remove MIP from an FHA loan?

At first glance, getting rid of your MIP seems like a no-brainer. However, if you’re considering refinancing just to remove MIP, think it through.

You should only refinance to remove MIP if it’ll save you money. If you’re able to reduce your monthly payments and total interest charges by refinancing — possibly because interest rates have gone down or your credit has improved — then it’s a smart move. If you can’t get a lower rate by refinancing, you may want to stick with your original loan, even if it includes MIP.

Keep in mind that, if you refinance to a conventional loan and your LTV ratio is 80 percent or higher, you’ll still have to pay for mortgage insurance — and PMI could be pricier than FHA MIP. Factor this into your calculations.

FAQs

• How does FHA mortgage insurance work?
  

  FHA loans are insured by the Federal Home Administration — meaning, should the borrower default on the mortgage, the FHA reimburses the lender the outstanding balance. This FHA backing is what encourages lenders to provide financing to borrowers who have lower credit scores, can’t manage a 20 percent down payment or who might not otherwise meet the lender’s criteria. The FHA mortgage insurance premiums you’re charged go towards paying for the FHA’s coverage. So, although borrowers pay for it, FHA mortgage insurance actually protects the lenders, covering their risk for issuing the loan.

• Can I reduce my FHA mortgage insurance premium?
  

  Possibly. You might be able to reduce FHA MIP by refinancing to another FHA loan at a lower LTV ratio. The U.S. Department of Housing and Urban Development (HUD), which oversees FHA loans, lowered FHA mortgage insurance premiums in 2023.

• Can I use a cash-out refinance to remove MIP?
  

  It depends on the type of refi. FHA cash-out refis still incur MIP. Conventional ones and VA ones don’t, provided you have enough equity built up in the home — generally, 20 percent of its overall value. But you’d have to ensure you’d be able to maintain that amount of equity, even with your cash takeaway.