What Is An FHA Mortgage Insurance Premium (MIP)?

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Key takeaways

If you take out an FHA loan, you must pay FHA mortgage insurance premiums (MIP), which protect the lender if you default.
FHA MIP includes an upfront premium, typically paid at closing, and annual premiums.
The cost of the annual premiums depends on the amount of your loan, the size of your down payment and the loan term.

What is an FHA mortgage insurance premium (MIP)?

FHA mortgage insurance premiums are additional fees that all FHA loan borrowers pay, upfront and over the mortgage term. Most FHA borrowers must pay them for the duration of the loan.

However, FHA MIPs don’t protect the borrower. Instead, they protect the lender in case the borrower defaults.

FHA loans are “insured” by the Federal Housing Administration (FHA). FHA mortgage insurance premiums go to the Mutual Mortgage Insurance Fund (MMIF), and when a borrower defaults on a mortgage, the agency compensates the lender for the outstanding balance using money in the fund.

Lenders consider FHA applicants riskier because they often have lower credit scores, make smaller down payments or both. MIP helps lenders mitigate the risk of providing mortgages to these applicants and makes the FHA program possible.

MIP vs. PMI

MIP for an FHA loan is mandatory no matter how much you put down, and in most cases, you’ll pay it for your entire loan term.

You’ll pay private mortgage insurance, or PMI, on a conventional loan if you put less than 20 percent down. However, you can remove PMI once you’ve reached 20 percent equity in your home.

How much does FHA mortgage insurance cost?

As a borrower, you’ll pay two FHA mortgage insurance premiums: an upfront premium and annual premiums.

FHA upfront mortgage insurance premium: 1.75 percent of the loan amount
FHA annual MIP: Varies based on the size, term and loan-to-value (LTV) ratio of the loan

Upfront mortgage insurance premium

No matter how much you borrow with an FHA loan, the upfront mortgage insurance premium totals 1.75 percent of that amount. You can pay this premium all at once at closing or add it to your mortgage and pay it over time. If you choose the latter, you’ll pay interest on this cost, adding to your overall expense.

Annual mortgage insurance premium

FHA annual premiums are based on the loan amount, loan term and loan-to-value (LTV) ratio, or size of your down payment. You’ll pay this premium in installments each year with your monthly mortgage payment. Here’s how the premiums work:

FHA loans with terms longer than 15 years

Loan amount	LTV ratio	MIP	Duration of insurance payments
$726,200 or less	90% or less	0.50%	11 years
	More than 90% and less than or equal to 95%	0.50%	Entire loan term
	More than 95%	0.55%	Entire loan term
More than $726,200	90% or less	0.70%	11 years
	More than 90% and less than or equal to 95%	0.70%	Entire loan term
	More than 95%	0.75%	Entire loan term

FHA loans with terms of 15 years or less

Loan amount	LTV ratio	MIP	Duration of insurance payments
$726,200 or less	90% or less	0.15%	11 years
	More than 90%	0.40%	Entire loan term
More than $726,200	78% or less	0.15%	11 years
	More than 78% and less than or equal to 90%	0.40%	11 years
	More than 90%	0.65%	Entire loan term

FHA simple or streamline refinances

Loan amount	LTV ratio	MIP	Duration of insurance payments
Any	90% or less	0.55%	11 years
Any	More than 90%	0.55%	Entire loan term
Note: These premiums apply to FHA refinances closed on or before May 31, 2009. The MIP refinance terms for subsequent mortgages are the same as those on regular FHA loans.

Example of an FHA MIP payment

Let’s say you take out a 30-year FHA loan to buy a property with a sale price of $340,000. Let’s also say that you make a 3.5 percent down payment, or $11,900. That makes your loan principal $328,100.

Your upfront MIP cost will total $5,742. In addition to this, you’ll pay 0.55 percent of the loan amount each year, spread throughout your monthly payments. This will total about $150 per month for your loan term.

How long will you pay FHA MIP?

If you get a 30-year FHA loan and put 3.5 percent down, you’ll be paying MIP for as long as you have the loan. If you put down at least 10 percent, you’ll pay for 11 years.

This guidance applies to new FHA loans, however. The FHA has changed its rules more than once on this issue:

Loan origination date	Duration of insurance payments
July 1991-Dec. 2000	Entire loan term
Jan. 2001-June 3, 2013	5 years; canceled at 78% LTV

After June 3, 2013	Duration of insurance payments if 10% or higher down payment	Duration of insurance payments if less than 10% down
	11 years	Entire loan term

Can you avoid FHA mortgage insurance?

All FHA loans require mortgage insurance, either for the life of the loan or a set number of years. Still, you can avoid or mitigate FHA mortgage insurance by:

Finding down payment assistance: You might qualify for one or more assistance programs to pair with an FHA loan. This could help boost your down payment to 10 percent, so you won’t pay MIP for the entire loan term.
Obtaining another type of mortgage: If you’re an eligible service member or buying in a qualifying rural area, you could get a VA loan or USDA loan, respectively, for no money down and with no mortgage insurance requirement.
Refinancing in the future: If you can’t avoid FHA mortgage insurance now, you might be able to refinance into a conventional loan without PMI later on.

Can you lower your FHA insurance premium?

It is not possible to lower the MIP amount on an existing loan. If you have an FHA loan, you will need to make the same MIP payment each month until you’ve paid off your mortgage.

If you qualify for a lower interest rate now than when you got the FHA loan, refinancing could result in a lower interest rate, payment and MIP. However, refinancing just for the lower MIP is usually not worth it.

FAQ

An FHA 203B loan is another name for the standard FHA purchase loan. The annual mortgage premium depends on your loan amount, your loan term and your down payment, and it costs between 0.15 percent and 0.75 percent of the loan amount.
No, FHA mortgage insurance is not tax deductible. Mortgage insurance premiums were tax deductible in the past, but this is no longer true.
If you refinance your existing FHA loan through an FHA Streamline Refinance, you can get a partial refund of your upfront MIP. The refund amount decreases the further away you get from the date you took out the original loan, and three years after you took it out, you’re no longer eligible for a refund.