Can I Remove PMI on My FHA Loan?

Private mortgage insurance (PMI) is an additional cost required by most lenders when your down payment is less than 20% of the home’s purchase price. With an FHA loan, this insurance is called mortgage insurance premium (MIP) and it is required regardless of your down payment amount. So can you remove MIP on an FHA loan?

Unfortunately, removing MIP from an FHA loan is not as straightforward as removing PMI from a conventional loan. Here’s what you need to know:

When Can MIP Be Removed from an FHA Loan?

Whether and when you can cancel MIP depends on two main factors

• When You Originated The Loan If you originated your FHA loan between July 1991 and December 2000 you likely cannot cancel MIP at all. For loans originated between January 2001 and June 2013, MIP can be removed once you reach 78% loan-to-value (LTV) ratio. For loans originated after June 2013 rules differ depending on your down payment amount.

• Your Down Payment Amount: If you put down at least 10% at origination, MIP can be removed after 11 years. For less than 10% down, you’ll pay MIP for the life of the loan.

So if you originated after 2013 and put down less than 10%, you’ll be stuck paying MIP until you pay off the loan.

How to Remove MIP from an FHA Loan

If you do meet the criteria for MIP cancellation based on origination date and down payment, there are two ways to go about removing it:

1. Wait for Automatic Cancellation

If you are eligible for MIP removal based on the above criteria, your mortgage servicer will automatically cancel MIP once you hit the 78% LTV threshold or 11-year mark, assuming you have a history of on-time payments.

You don’t need to take any action for this cancellation, but make sure to follow up with your servicer if MIP hasn’t been removed on schedule.

2. Refinance to a Conventional Loan

If you don’t qualify for automatic cancellation, or want to remove MIP sooner, you may consider refinancing to a conventional loan.

With a conventional loan, you can typically cancel private mortgage insurance once you reach 20% equity. The Homeowners Protection Act also requires automatic cancellation of PMI once you hit 78% LTV on a conventional loan.

Before refinancing, make sure to consider:

• Current interest rates vs your existing rate
• Your credit score compared to when you originated
• Your current loan-to-value ratio
• Closing costs for the refi

Doing the math will help you determine if refinancing now makes sense, or if you’re better off waiting.

Our mortgage refinance calculator can help compare options.

What Happens After MIP Is Removed?

Once mortgage insurance is removed from your FHA loan, whether automatically or through refinancing, your monthly mortgage payment will decrease.

For example, if your MIP was 0.55% annually on a $200,000 loan balance, that adds about $92 per month. Removing MIP would lower your payment by that amount.

You can use that extra cash flow to build savings, pay additional principal on your mortgage, or for other financial goals. Paying extra principal is especially helpful for paying off your loan faster and saving on interest costs.

Should You Bother Removing MIP?

Eliminating mortgage insurance premiums can seem appealing, but make sure it aligns with your overall financial situation before taking action.

On one hand, paying MIP for the long haul can get expensive. But keep in mind:

• Refinancing restarts the loan term at 30 years. You’ll be paying interest longer than if you kept your existing FHA loan.

• Conventional loans require PMI for LTV ratios above 80%. And PMI may be more expensive than your current MIP.

• If refinancing increases your interest rate, higher monthly payments could offset mortgage insurance savings.

Carefully crunch the numbers for your situation before deciding if removing MIP now is worth the tradeoffs versus continuing to pay MIP and pay off your FHA loan as scheduled.

Frequently Asked Questions

How much is MIP on an FHA loan?

MIP rates range from 0.45% to 1.05% of your original loan amount annually. So on a $200,000 loan, you’ll pay between $900 to $2,100 extra per year. Most borrowers pay 0.85% annually.

Can I get rid of PMI when refinancing FHA to conventional?

Yes, you can eliminate mortgage insurance payments when refinancing from FHA to conventional, as long as your new loan-to-value ratio is 80% or less. Conventional loans do not require mortgage insurance for LTVs below 80%.

Does a streamline FHA refinance remove PMI?

No, FHA streamline refinancing keeps your existing MIP in place. You would need to refinance to a conventional loan to eliminate MIP, provided you have 20% equity or higher in the home.

Can I use a cash-out refinance to remove PMI?

You can use a cash-out refinance to eliminate PMI if you refinance to a conventional loan, take out a small enough amount to keep your LTV at 80% or less, and meet the lender qualifications. FHA cash-out refinancing still requires MIP.

The Bottom Line

Removing MIP from an FHA loan is not always possible, but can be done in some cases by waiting for automatic cancellation after several years or refinancing to a conventional loan.

Crunch the numbers for your situation to decide if paying the ongoing MIP is better than restarting your loan term through refinancing. Reach out to loan officers or your mortgage servicer to discuss your options.