The Quick Read: The annual mortgage insurance premium (MIP) is a fixed percentage of your loan balance, split into twelve monthly pieces and added to your payment. A cash-out refinance starts you with a bigger balance, so the MIP line starts bigger too. That line then shrinks a little each year as you pay down principal. On a standard cash-out at the 80% loan-to-value maximum, the schedule generally points to an end date around year eleven, subject to the lender’s file review.
Key Takeaways
- Annual MIP equals your balance times the premium percentage, divided by 12. Nothing more exotic than that.
- The premium percentage runs between 0.15% and 0.75% of the balance. Term, loan amount and LTV pick your spot in that range.
- A larger cash-out raises the MIP line in every year, in direct proportion to the larger balance.
- At or below 90% LTV on a longer term, MIP ends after eleven years. Above 90%, it lasts the full term.
- A new FHA loan starts the clock over. These specifics are subject to lender guidelines and a full review of property, leverage, and credit.
How Is Annual MIP Built Into the Payment?
Annual MIP is one line inside your monthly payment, next to principal, interest, taxes and homeowners insurance. FHA charges the premium yearly on the outstanding balance and collects it monthly.
The formula is simple: balance × annual premium percentage ÷ 12 = this month’s MIP. Every FHA loan has this line, and the premium does not change with your credit score.
Say a homeowner’s new balance is 10% larger because of cash taken out. The MIP line is 10% larger in year one, and that 10% gap holds in every later year, because the premium follows the balance. Cash-out has no one-time MIP surcharge. It just makes the base bigger.
Lendmire arranges loans through wholesale lenders and does not set these premiums. Across the wholesale programs Lendmire places files with, the premium range is the same: 0.15% to 0.75% of the balance, set by term, amount and LTV. Details on the FHA cash-out refinance program show how the equity limit works alongside it.
What Sets Your Premium Tier?
Four inputs set your tier: the loan term, the base loan amount, the LTV and the date your FHA case number was assigned. Together they choose a percentage between 0.15% and 0.75% and an end date.
Here is what each one does:
- Term. Terms of 15 years or less sit at the low end of the range. Longer terms sit higher.
- Base loan amount. A higher loan amount lands in a higher tier. HUD uses a set base-loan threshold, and county loan limits apply on top of that. Your loan officer checks where your file falls.
- LTV. Cash-out tops out at 80% of the appraised value on a home you have owned and lived in for 12 months before the case number. Because 80% is below the 90% line, you land in the lower LTV bracket.
- Case-number date. Loans with case numbers assigned after HUD’s duration change follow the current rules. Older ones do not.
The appraisal matters more than most borrowers expect. It sets the denominator for the 80% cap, so a lower appraisal means a smaller maximum loan and a smaller MIP line. The cash you take home is that cap minus your payoff and costs.
How Long Does the Premium Last on a Cash-Out?
On a longer-term loan at or below 90% LTV, annual MIP ends after eleven years. Above 90% LTV, it runs for the whole term. A standard cash-out cannot exceed 80%, so the eleven-year path is the one it generally follows.
That conclusion comes from reading two HUD documents together. HUD Mortgagee Letter 2023-05 gives the premium schedule and says the duration is 11 years at 90% LTV or below, and the mortgage term above 90%. Separately, the 80% cash-out cap keeps you in the lower bracket. HUD does not publish a page that says “cash-out MIP lasts eleven years” in those words, so treat that as a reading of the schedule. Your loan officer confirms it on your actual file. Terms depend on the lender’s guidelines, the property type, the leverage, and a full review of the credit profile.
For the end date itself, HUD’s FHA Connection help page says the final monthly MIP date is eleven years from endorsement or the loan’s maturity, whichever applies. HUD’s duration policy for current case numbers traces to Mortgagee Letter 2013-04, which set annual MIP at the maximum duration the statute allows.
What Does the Payment Look Like Over the Years?
The MIP line falls every year as principal falls. It never stays flat, and it never jumps. Here is the shape of a longer-term cash-out at the 80% maximum, described by milestone rather than dollars.
| Point in the loan | Balance | MIP line |
|---|---|---|
| Year one | Highest (cash-out plus financed upfront premium) | Highest |
| Middle years | Falling slowly | Shrinking each year |
| Year eleven | Still well above zero | Smaller than year one, then ends |
| After year eleven | Still owed | Gone (at or below 90% LTV) |
Two things in that table matter. First, early amortization is slow, so the MIP line barely moves in the first few years. Second, the line drops to zero in one step when the eleven years end. Your payment falls by exactly that line, nothing else.
Want your own figure? Take the balance on your Loan Estimate, multiply by the premium percentage your loan officer quotes, and divide by 12. Repeat with next year’s balance from your amortization schedule. The sum of those twelve-month figures across eleven years is your total MIP on the loan.
What Does the Upfront Premium Add?
The upfront premium is 1.75% of the base loan, and most borrowers finance it into the loan. A financed upfront premium raises your balance. Since annual MIP and interest both run on the balance, financing the upfront piece also lifts the monthly MIP line.
The Consumer Financial Protection Bureau describes the same split: an upfront cost paid as part of closing costs and a monthly cost built into the payment. It also notes you can roll the upfront portion into the loan, which raises both the loan amount and the overall cost.
So a cash-out balance has three layers: your payoff, the cash you take, and the financed upfront premium. The annual MIP applies to all three. Your lender will itemize the pieces on your Loan Estimate.
How MIP Affects Whether You Qualify
Your full payment, MIP included, goes into the ratio check. Lenders compare your housing payment and your total debts to your income. The base pair is 31/43, and documented compensating factors can reach 40/50 at the top tier. On most files the automated finding governs.
For a cash-out borrower, this means the MIP line pushes your housing ratio up a little. If the file sits near a ratio limit, a bigger cash-out can tip it. Taking less cash, or choosing a shorter term where the premium percentage is lower, are the two levers that usually help. Both depend on lender guidelines and a full file review.
Where the General Rule Breaks
The eleven-year pattern has exceptions. Here are the named ones.
- Loans above 90% LTV. MIP lasts the term. A standard cash-out cannot reach that leverage, but the rule matters if you are comparing against a purchase loan.
- Shorter terms. A term of 15 years or less carries much lower premium percentages, per HUD’s FHA Answers page on MIP structure. The tradeoff is a larger principal payment each month.
- Older loans from before HUD’s duration change. Those could cancel automatically once the loan reached a set LTV after a minimum number of years. Refinance one into a new cash-out and you move to the current duration rules. That can be a loss: some borrowers who were close to automatic cancellation start a fresh eleven-year clock.
- New case number, new clock. Every new FHA loan resets the term and the MIP schedule, based on its own endorsement date and LTV.
- Streamline and Simple Refinances of very old FHA loans. HUD has a special reduced premium for those. It does not apply to a cash-out.
- Hawaiian Home Lands loans. They carry no annual MIP.
- Inherited homes. The 12-month occupancy test does not apply to inherited property, unless you rent it out after inheriting.
- Second homes and rentals. Standard FHA cash-out is for a principal residence only. Occupancy decides the leverage, and these properties fall outside this path.
One more item worth naming: a bill to end life-of-loan MIP has been introduced in Congress. It is not law. Do not plan around it.
Common Misconceptions
“MIP is always for life.” Not on a standard cash-out. At or below 90% LTV, it ends after eleven years. The exact numbers vary by lender and program and follow a full review of property, leverage, and credit.
“I can drop it at 20% equity like conventional PMI.” Private mortgage insurance follows different cancellation rules. On current FHA loans, paying down principal does not trigger an early cancellation. The usual way out is refinancing into another loan type once you have enough equity.
“The 2023 premium cut removed MIP.” It lowered the percentages for most new borrowers, per HUD’s announcement. FHA insurance still applies to every FHA loan.
“Cash-out can go to 85%.” The cap is 80% of the appraised value.
“My credit score changes my MIP.” It does not. The CFPB confirms FHA mortgage insurance pricing does not vary with credit score. That is a real advantage over private mortgage insurance for borrowers with lower scores. Lender minimums still apply; the wholesale programs Lendmire works with start at a 580 decision score on purchase files, and some lenders set a higher floor.
Key Terms Defined
Annual MIP: The recurring FHA mortgage insurance premium, charged as a percentage of the balance each year and collected monthly.
Upfront MIP: A one-time premium of 1.75% of the base loan, usually financed into the balance.
Base loan amount: The loan before any financed upfront premium. It decides your premium tier.
LTV (loan-to-value): Your loan balance divided by the appraised value. FHA cash-out stops at 80%.
Case number: The ID HUD assigns when an FHA loan file opens. Its date decides which MIP duration rules apply.
Endorsement: HUD’s formal acceptance of the loan for insurance. The MIP end date counts from it.
How to Decide
The question is not “is MIP bad?” It is whether the cash is worth the added balance, the added MIP line and a fresh eleven-year clock. Three checks help.
1. Compare the MIP line you have now with the one you would get. If your current loan already carries MIP, the new one starts from a bigger balance.
2. Ask about the term. A 15-year term cuts the premium percentage sharply, but raises the monthly principal.
3. Weigh the alternatives. A conventional cash-out or a HELOC may carry no MIP, but they need enough equity and a credit profile that fits. Lendmire’s piece How Pulling Equity for a Next Down Payment Favors a HELOC Over Cash-Out covers one of those paths.
Also plan for the exit. If you expect to refinance into a conventional loan once your equity grows, the MIP you pay until then is the cost of getting there. Add it up before you sign.
If you are weighing a cash-out refinance against keeping the loan you have, Lendmire can help you compare the programs and the equity each one reaches. Every figure here is subject to lender guidelines and a full file review, and none of it is a commitment to lend.
Frequently Asked Questions
How much does annual MIP add to my payment?
It depends on your balance and your tier. Multiply the balance by the premium percentage, between 0.15% and 0.75%, then divide by 12. A bigger cash-out raises the figure in proportion to the extra balance.
Does the MIP payment go down over time?
Yes, slowly. The premium follows your declining balance, so each year’s MIP line is a little smaller than the last. Early on, the drop is small because amortization starts slowly.
Will I pay MIP for the whole loan?
Usually not on a standard cash-out. At or below 90% LTV on a longer term, the premium ends after eleven years. Above 90% LTV, it lasts the term. A loan officer confirms your tier on the actual file.
Can I cancel MIP early by paying extra principal?
Not on current FHA loans. The practical exits are refinancing into a loan without MIP or waiting for the scheduled end date. Older loans from before HUD’s duration change had a different cancellation path.
Does a lower credit score raise my MIP?
No. FHA premium pricing does not vary by credit score. A lower score can still affect whether you qualify and which lenders will take the file.
For your own numbers, request a scenario review with Lendmire.
About Lendmire
Lendmire — NMLS# 2371349 — is a mortgage broker that arranges FHA, VA, conventional and jumbo home purchase and refinance financing in 16 states through wholesale lenders. Every option is subject to the lender’s guidelines and full underwriting. Scotsman Guide named Lendmire a Top Mortgage Workplace in both 2025 and 2026.
Get Started
Ready to find the right loan for you?
In about 30 seconds you can review financing options available for your home or investment property. No commitment required.
Informational only. Not a Loan Estimate, approval, or commitment to lend. Program availability and eligibility are subject to lender guidelines, credit approval, property review, and underwriting.
References
1. HUD Mortgagee Letter 2023-05
2. HUD FHA Connection help: Final MIP date
3. HUD Mortgagee Letter 2013-04
4. CFPB: What is mortgage insurance and how does it work?
5. HUD FHA Answers: MIP structure for forward mortgage loans
This article is part of Lendmire’s FHA Loan series — every loan program’s qualification details, guidelines, and scenarios live on the loan options page.
Related reading: Refinancing An FHA 203(k) Loan After The Renovation Is Done · FHA Simple Refinance Vs FHA Streamline: The Appraisal Makes The Difference · FHA Cash-out Refinance Credit Requirements: The Floor And The Overlays Above It
Brandon Miller
Founder & CEO, Mortgage Loan Originator, Lendmire LLC
- Mortgage Loan Originator · NMLS# 1129696 · Verify on NMLS Consumer Access
- North Carolina Real Estate Broker · License# 343312 · Verify on NCREC
- North Carolina Insurance Producer · License# 19053198 · Property, Casualty, Life, Health · Verify on NAIC SBS
- Lendmire LLC · Firm NMLS# 2371349 · Verify firm licensure
Important disclosures. Lendmire (NMLS# 2371349) is a licensed mortgage brokerage. Lendmire is not a direct lender, depository institution, or financial advisor. All loan inquiries are subject to lender underwriting; this article does not constitute a commitment to lend. Rates, terms, and program guidelines are subject to change without notice and vary by borrower profile, property type, and state. Information in this article is general in nature and is not financial, legal, or tax advice. Equal Housing Opportunity. NMLS Consumer Access: nmlsconsumeraccess.org.