MIP

· 2 min read
Mortgage Insurance Premium (MIP) is the insurance charge on FHA loans that protects the lender if you default — it comes in two flavors: a…

Mortgage Insurance Premium (MIP) is the insurance charge on FHA loans that protects the lender if you default — it comes in two flavors: a fat upfront fee at closing and a smaller monthly premium that, for most borrowers, sticks around for the entire life of the loan.

How MIP Works

Every FHA loan requires MIP. No exceptions, no matter your credit score or down payment. There are two components:

Upfront MIP (UFMIP): 1.75% of the loan amount, due at closing. Almost everyone rolls it into the loan balance rather than paying cash. On a $300,000 loan, that’s $5,250 added to your balance, making the actual loan $305,250.

Annual MIP: 0.55% of the loan amount per year for most borrowers (30-year term, LTV above 95%). This is divided by 12 and added to your monthly payment. On a $305,250 loan, annual MIP is $1,679/year or $140/month.

The Cost Impact

Let’s put real numbers on it. You’re buying a $350,000 home with 3.5% down on an FHA 30-year fixed at 6.50%:

  • Loan amount: $337,750 + $5,910 UFMIP = $343,660
  • Monthly P&I: $2,173
  • Monthly MIP: $158
  • Total with MIP: $2,331/month

Over 30 years, you’ll pay roughly $56,880 in annual MIP alone — plus the $5,910 upfront. That’s $62,790 in total mortgage insurance. A conventional loan with PMI at the same down payment would cost less in insurance long-term because you can cancel PMI at 80% LTV.

When MIP Goes Away (and When It Doesn’t)

Here’s the catch most borrowers don’t realize: if you put less than 10% down on an FHA loan (the standard 3.5% minimum), MIP stays for the entire 30-year term. It never goes away unless you refinance into a conventional loan.

If you put 10% or more down, MIP drops off after 11 years. But very few FHA borrowers put 10% down — if you have that much, a conventional loan with PMI is usually the better deal since PMI cancels at 80% LTV regardless of down payment size.

FHA MIP vs. Conventional PMI

FHA loans have lower credit requirements (580 minimum vs. 620 for conventional) and allow higher DTIs. But MIP is the tradeoff. A borrower with 700+ credit and 5% down almost always pays less with conventional PMI that drops off at 80% equity than with FHA’s permanent MIP. The breakeven credit score is around 680 — below that, FHA’s better rates might offset the MIP cost.

Frequently Asked Questions

Can I get rid of FHA MIP without refinancing?

Only if you put 10%+ down — then MIP drops after 11 years. With the standard 3.5% down, the only escape is refinancing into a conventional loan once you have 20% equity. Many FHA borrowers plan this as a two-step strategy: FHA to get in the door, then refinance to conventional in 2-4 years when equity and credit have improved.

Is the upfront MIP refundable if I refinance?

Partially. If you refinance within the first 3 years, you’ll receive a prorated refund of the upfront MIP. The refund decreases each month. After 3 years, no refund. This is one reason many FHA borrowers refinance relatively quickly — they recapture some of that upfront cost. Run the numbers on our mortgage calculator to plan your timeline.