How do I cancel FHA mortgage insurance?
Despite what you've heard, the FHA mortgage insurance premium (MIP) is not permanent. Conventional mortgage insurance is also not possible.
Some homeowners can simply have their mortgage insurance canceled; others have to use it to refinance.
With mortgage rates near historic lows and rising property values, many are opting for the latter.
Homeowners save hundreds a month by refinancing – especially when they can take almost 1% off their interest rate.
Getting rid of FHA MIP is a big deal. Ready to go? You can check your eligibility for a new, PMI-free mortgage through a refinance.
Review Your FHA MIP Removal Eligibility (June 18, 2021)
In this article (continue to …)
How long does FHA MIP last?
FHA loans fall into two categories: those with case numbers issued before June 3, 2013, and applications made on or after that date.
The removal of FHA-MIP depends on this deadline, as then the FHA rules will have changed.
FHA loans that you applied for on or after June 3, 2013
Repayment termOriginal depositMIP duration20, 25, 30 yearsLess than 10% loan duration20, 25, 30 yearsMore than 10% 11 years15 years or lessLess than 10% loan duration15 years or lessMore than 10% 11 years
FHA loans that you applied for before June 3, 2013:
Repayment termOriginal depositMIP duration20, 25, 30 years Less than 10% 78% LTV after 5 years20, 25, 30 years10-22% 78% LTV after 5 years20, 25, 30 yearsMore than 22% 5 years15 yearsLess than 10% 78% LTV15 years10-22% 78% LTV 15 years More than 22% No MIP
How to Remove the FHA Mortgage Insurance Premium
FHA mortgage insurance payment doesn't have to be permanent. All you need is a decent loan and enough equity to refinance into a traditional loan.
According to the National Association of REALTORS, the average home for sale in the U.S. as of April 2021 was $ 341,600. That is 18% more than a year earlier.
That means more homeowners will be able to get refinance from FHA and very soon.
Once homeowners reach 20% equity based on fair value, they can refinance themselves with a conventional loan – a loan that does not require any mortgage insurance.
Review Your FHA MIP Removal Eligibility (June 18, 2021)
Automatic FHA Mortgage Insurance Removal
If you received your FHA loan before June 3, 2013, you will be eligible for MIP termination after five years.
You must have 22% equity in the property and have made all payments on time.
For homeowners with issued FHA loans on or after June 3, 2013You must refinance yourself into a conventional loan and have a current loan-to-value ratio of 80% or less.
The loan-to-value ratio (LTV) is another way to measure your home equity.
If you owe $ 160,000 on your home worth $ 200,000, your LTV is 80% because the loan balance ($ 160,000) is 80% of the value of the house ($ 200,000).
An 80% LTV means you have 20% home equity, which should be enough to refinance into a conventional no-PMI loan.
Refinancing to remove FHA MIP
Most FHA homeowners today have a loan with the following features:
Opened on or after June 3, 2013Less than 10% original down payment30 year loan
These FHA mortgage loans are not eligible for automatic mortgage insurance termination.
To stop paying mortgage insurance premiums, you need to refinance your FHA loan.
The good news is that there are no restrictions on refinancing from FHA to a conventional loan without a PMI. Plus, there are never any prepayment penalties on FHA loans, so you can always refinance.
To do this, you need around 20% home equity. To find your home equity, subtract your current mortgage balance from the value of your home.
You also need a credit score of at least 620 to be able to refinance into a traditional loan with most lenders.
Review Your FHA MIP Removal Eligibility (June 18, 2021)
Refinance in lower FHA MIP
Not everyone is eligible for conventional refinancing, and that's fine. There may be a way to lower your FHA mortgage insurance costs, even if you can't get rid of it entirely.
You may have a higher MIP rate than available today.
Here is a history of the FHA MIP rates collected by the Federal Housing Administration:
Before January 2008: 0.50% annually MIPApril 2008: 0.55% annually MIPApril 2010: 0.55% annually MIPApril 2010: 0.90% annually MIPApril 2011: 1.15% annually MIPApril 2012: 1.25% annually MIPApril 2013: 1.35% annual MIP January 2015: 0.85% annual MIP
For example, if you received a loan in January 2013, you can refinance in today's lower MIP and save $ 40 per month per $ 100,000 borrowed. You can also save even more with a lower mortgage rate.
Note, however, that the MIP of your new FHA loan will become non-reversible. That's because your new loan will be granted after June 2013 when the FHA MIP rules changed.
Reduced upfront and monthly MIP for certain refinancing homeowners
If you received your FHA loan before May 31, 2009, you can get lower MIP rates through an FHA Streamline Refinance.
Eligible candidates receive an annual MIP of 0.55% (standard is 0.85%) and a reduced up-front MIP of 0.01% (standard is 1.75%).
That's $ 3,480 upfront savings and $ 50 per month on a $ 200,000 loan.
How To Remove Conventional Private Mortgage Insurance (PMI)
You have more options to cancel mortgage insurance when you have a conventional (non-government) loan with PMI.
You can just wait for your PMI coverage to wear off. The law requires lenders to cancel the traditional PMI when they reach a mortgage lending value of 78%.
Many homebuyers choose a conventional loan because the PMI will go down while the FHA MIP won't go away on its own – unless you wager 10% or more.
Remember that most mortgage lenders base the 78% LTV on their most recent appraisal, rather than the original value at the time of purchase.
If your home value has increased significantly, reach out to your current loan service provider and review their early termination requirements.
The property manager may need a new appraisal or rely on their own in-house appraisal tools to determine the current value of your home.
You can also cancel the conventional PMI with a refinancing.
The report for your refinancing loan serves as proof of the current value. If your loan amount is 80% or less of your current value, no new PMI will apply.
Check your PMI removal eligibility (June 18, 2021)
How to do a PMI refinance
The refinancing process is straightforward. Get an estimate of the value from a local real estate agent or loan officer. Online property valuation websites can be inaccurate so be careful with these.
See if you have around 20% equity based on the estimated value of your home. Be sure to add the closing costs to your existing loan balance if you don't want to pay them out of pocket.
For example, suppose you bought a house three years ago:
Original Purchase Price: $ 200,000 Original FHA Loan Amount: $ 196,375 FHA MIP Payment: $ 1,186
After three years you have paid off the capital and the value of your house has increased. Both of these factors will help you cancel your FHA MIP.
New Conventional Loan Amount: US $ 188,000 Current Value: US $ 235,000 Lending Value: 80% New Payment (no PMI): US $ 898
Refinancing from FHA MIP can result in significant savings.
Homeowners who received an FHA loan prior to January 2015 pay quite high premiums for FHA mortgage insurance. This is because the FHA cut premiums by 35% in 2015, but only for new FHA applicants.
Buyers of FHA houses before 2015 can achieve a double saving effect: They take advantage of today's low interest rates and cancel the high FHA mortgage insurance – all with one refinancing.
Conventional PMI vs. FHA Mortgage Insurance
The obvious advantage over traditional PMI is that it automatically drops out – no refinancing required. This is not the case with FHA MIP.
However, many home buyers choose FHA and their mortgage insurance because they can be more cost effective.
The graph below shows FHA and conventional PMI costs assuming a decrease of 3.5%.
credit-worthinessMonthly FHA MIP cost per $ 100,000 loanMixed monthly PMI costs per USD 100,000 loanFHA Monthly Savings per $ 100,000 Borrowed$ 720 $ 71 $ 80 $ 9700 $ 71 $ 95 $ 24 680 $ 71 $ 115 $ 44 660 $ 71 $ 160 $ 89 640 $ 71 $ 170 $ 99
While FHA MIP is non-cancellable, it is often the cheaper choice for homebuyers.
Current FHA mortgage insurance rates
2021 FHA MIP rates are as follows for 20, 25, and 30 year FHA loans.
Initial credit amountOriginal depositAnnual MIP<$ 625,500 <5% 0.85%<$625,500>5% 0.80%> $ 625,500<5%1.05%>$ 625,500> 5% 1.00%
FHA loans with a term of 15 years or less qualify for a reduced MIP of only 0.45% annually.
In addition, FHA loans require an upfront mortgage insurance premium (UFMIP) equal to 1.75% of the loan amount.
You may be eligible for a partial FHA MIP refund if you refinance to another FHA loan within three years.
Can you withdraw cash when taking out refi mortgage elimination insurance?
Some homeowners with a lot of equity can use that equity through a cash-out refinancing.
You can take over up to 80% of the value of your home with traditional cash out loans. If that's more than your existing balance, you can keep the extra cash and avoid PMI.
The FHA also offers a withdrawal offering called FHA withdrawal refinancing. It allows loans up to 80% of the value of your home. However, you will still pay the FHA mortgage insurance. So it is best to look at the conventional version first.
Frequently asked questions about FHA mortgage insurance
Does FHA need a PMI without 20% less?
PMI (private mortgage insurance) is required for less than 20% conventional loans. However, different rules apply to FHA loans. All FHA loans require a Mortgage Insurance Premium (MIP) regardless of the amount of the down payment. This means that new FHA loans come with a 1.75% upfront mortgage insurance payment and 0.85% annual mortgage insurance payment, even if 20% less was paid.
Can PMI be removed from FHA loans?
Mortgage Insurance (PMI) will be removed from traditional mortgages once the loan reaches a loan-to-value ratio of 78%. But removing FHA mortgage insurance is a different story. Depending on your down payment and when you first took out the loan, the FHA Mortgage Insurance (MIP) premium is typically 11 years or the term of the loan. MIP does not automatically fall off. To remove it, once you have reached 20% equity, you will need to refinance into another mortgage program.
How do I get rid of FHA mortgage insurance?
If your FHA loan was made prior to June 3, 2013, you may be eligible for mortgage insurance. These older FHA loans are eligible for MIP elimination after five years. However, the loan must have an LTV of 78% or less. If your FHA loan was issued on or after June 3, 2013, you are not eligible for FHA mortgage insurance cancellation. However, if you have built up at least 20% equity in the house, you can get rid of MIP by refinancing to another loan program. That usually means refinancing to a conventional loan without a PMI. Veterans could also look into VA loan options.
Are there any lenders who specialize in FHA-to-conventional refinancing?
Any lender offering Fannie Mae and Freddie Mac conventional loans can help you terminate your FHA MIP through a refinance. Any FHA approved lender can help you reduce your payments with an FHA streamline loan. Shop around for the best prices. While most lenders in the US offer conventional and FHA loans, each one offers different interest rates.
How can I get rid of PMI without 20% less?
If you are currently paying for PMI or MIP mortgage insurance, you can get rid of them by refinancing once your home has reached 20% equity. When looking for a new home loan, look for options that allow for 20% less PMI even without it. Homebuyers without a 20% discount can avoid mortgage insurance with a piggyback loan, lender-paid mortgage insurance, or a specialty mortgage program that doesn't require a PMI.
How is Mortgage Insurance (MIP) calculated by the FHA?
Almost all FHA borrowers pay the same mortgage insurance rates. This includes an upfront Mortgage Insurance Premium (UFMIP) of 1.75% of the loan amount, which is paid upon completion (although most people do add this cost to their loan balance) and an Annual Mortgage Insurance Premium (MIP) of 0.85% of the loan Amount that will be broken into and added to your monthly mortgage payments.
Does FHA Mortgage Insurance Fail Every Year?
FHA mortgage insurance rates don't go down every year. But your premium payments do. That's because the mortgage insurance payments are calculated based on your loan amount. As your loan balance goes down every year, the dollar amount you pay for mortgage insurance is also reduced.
Can FHA Mortgage Insurance Be Increased?
The FHA can increase the mortgage insurance at any time. But your existing MIP will not increase. As long as you stick with your original FHA loan (and not refinance into a new FHA mortgage), you will continue to pay your original mortgage insurance rate as long as your MIP is due.
Is it worth paying PMI or MIP?
Mortgage insurance is often worthwhile. That's because traditional PMI loans and FHA MIP loans allow you to buy a home with a much lower down payment than you otherwise could. And FHA loans are especially lenient when it comes to credit. So, if you don't qualify for a mortgage without a PMI or MIP, your best bet may be to bite the bullet and pay off mortgage insurance for a few years. You will start building equity sooner. And you could refinance into a conventional no-PMI loan once you have 20% equity.
How do i start?
Contact a lender and get a quote. Mortgage offers come with an eligibility check and possibly an estimate of the current home value.
Get a Quote and Start Canceling Your FHA MIP Today.
Confirm your new plan (June 18, 2021)